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Akzo Nobel NV · 20-F · For 12/31/02

Filed On 4/22/03 10:43am ET · SEC File 0-17444 · Accession Number 1208646-3-72

  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 4/22/03  Akzo Nobel NV                     20-F       12/31/02    3:172                                    Imprima Debussy Ltd/FA

Annual Report of a Foreign Private Issuer · Form 20-F
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Akzo Nobel 20f                                       149    742K 
 2: EX-8        Opinion re: Tax Matters                               22     91K 
 3: EX-10       Exhibit 10a                                            1      5K

20-F · Akzo Nobel 20f
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Additional Information Akzo Nobel Business Review and Developments at Business Units Change in Accounting Principles Chemicals Coatings Defaults, Dividend Arreages and Delinquencies Description of Securities Other Than Equity Securities Directors, Senior Management and Employees Disclosure Controls and Procedures Exhibits Financial Information Financial Statements Forward looking statement on 2003 Identity of Directors, Senior Management and Advisors Information on the Company Key Information Major Shareholders and Related Party Transactions Material Modifications to the Rights of Security Holders and Use of Proceeds Offer Statistics and Expected Timetable Operating and Financial Review and Prospects Pharma Quantitative and Qualitative Disclosures about Market Risk Reserved The Offer and Listing
1	1st Page
5	Item 1. Identity of Directors, Senior Management and Advisors
"	Item 2. Offer Statistics and Expected Timetable
"	Item 3. Key Information
15	Item 4. Information on the Company
17	Pharma
18	Coatings
"	Chemicals
34	Business Review and Developments at Business Units
55	Item 5. Operating and Financial Review and Prospects
"	Change in Accounting Principles
77	Forward looking statement on 2003
78	Item 6. Directors, Senior Management and Employees
87	Item 7. Major Shareholders and Related Party Transactions
88	Item 8. Financial Information
91	Item 9. The Offer and Listing
92	Item 10. Additional Information
98	Item 11. Quantitative and Qualitative Disclosures about Market Risk
100	Item 12. Description of Securities Other Than Equity Securities
"	Item 13. Defaults, Dividend Arreages and Delinquencies
"	Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
"	Item 15. Disclosure Controls and Procedures
"	Item 16. Reserved
"	Item 17. Financial Statements
108	Akzo Nobel
146	Item 19. Exhibits

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SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549  

FORM 20-F 
(Mark one)                                                                      
(  )REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES  
EXCHANGE ACT OF 1934                                                    
or                                                                      
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES             
EXCHANGE ACT OF 1934                                                    
For the fiscal year ended December 31, 2002                             
or                                                                      
(  )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES        
EXCHANGE ACT OF 1934                                                    
Commission file number 0-17444                                          

AKZO NOBEL N.V. 
(Exact name of registrant as specified in its charter)  

THE NETHERLANDS 
(Jurisdiction of incorporation or organization) 

76 VELPERWEG, 6824 BM  ARNHEM 
(Address of principal executive offices)  

Securities registered or to be registered pursuant to Section 12 (b) of the 
Act:  
Title of each class             Name of each exchange on which registered   
--------------------            -----------------------------------------   
AMERICAN DEPOSITARY SHARES                    NASDAQ/NMS                    
COMMON SHARES OF EUR 2 EACH                   NASDAQ/NMS*                   

* Not for trading, but only in connection with the registration of American 
Depositary Shares,  
pursuant to the requirements of the Securities and Exchange Commission  

Securities registered or to be registered pursuant to Section 12 (g) of the 
Act: NONE 

Securities for which there is a reporting obligation pursuant to Section 15 (d) 
of the Act: NONE  

Indicate the number of outstanding shares of each of the issuer's classes of  
capital or common shares as of the close of the period covered by the annual  
report: 

COMMON SHARES, PAR VALUE EUR 2 PER SHARE 286,147,260
PRIORITY SHARES, PAR VALUE EUR 400 PER SHARE 48     

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of  
1934 during the preceding 12 months (or for such shorter period that the  
registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days. 
 Yes X      No {box}

Indicate by check mark which financial statement item the registrant has  
elected to follow.  
     Item 17 {box}          Item 18  X

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                                                                               1

Akzo Nobel N.V. 
TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                    Page 
                                                                                         
PART I                                                                                   
        Introduction                                                                   3 
Item 1  Identity of directors, senior management and advisors                          4 
Item 2  Offer statistics and expected timetable                                        4 
Item 3  Key information                                                                4 
Item 4  Information on the company                                                    14 
Item 5  Operating and financial review and prospects                                  54 
Item 6  Directors, senior management and employees                                    77 
Item 7  Major shareholders and related party transactions                             86 
Item 8  Financial information                                                         87 
Item 9  The offer and listing                                                         90 
Item 10 Additional information                                                        91 
Item 11 Quantitative and qualitative disclosure about market risk                     97 
Item 12 Description of securities other than equity securities                        99 

PART II                                                                                  
Item 13 Defaults, dividend arreages and delinquencies                                 99 
Item 14 Material modifications to the rights of security holders and use of proceeds     
                                                                                      99 
Item 15 Disclosure Controls and Procedures                                            99 
Item 16 Reserved                                                                      99 

PART III                                                                                 
Item 17 Financial statements                                                          99 
Item 18 Financial statements                                                         100 
Item 19 Exhibits                                                                     145 

        Signatures and Certifications                                                146 


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                                                                               3

PART I  

INTRODUCTION                                                                    

The consolidated financial statements of Akzo Nobel N.V. and subsidiaries       
appearing in this annual report are prepared in accordance with accounting      
principles generally accepted in the Netherlands ("NL GAAP"). NL GAAP differ in 
certain respects from accounting principles generally accepted in the United    
States ("US GAAP"). The significant differences between NL GAAP and US GAAP     
affecting Akzo Nobel's net income and shareholder's equity are discussed in     
Note 21 of the Notes to the Consolidated Financial Statements of Akzo Nobel.    

The terms "Akzo Nobel" or "the Company" are sometimes used herein for           
convenience in contexts where reference is made to the consolidated companies   
of Akzo Nobel N.V. in general. Such terms are also used for convenience in      
referring to individual groups and subsidiaries.                                

In this annual report, unless otherwise specified or the context otherwise      
requires, references to "dollars", "U.S. dollars" and "USD" are to the United   
States currency. For convenience only (except where noted otherwise), certain   
euro figures have been translated into dollars at the rate of EUR 0.955 =       
USD 1.00, the noon buying rate in The City of New York for cable transfers in   
foreign currencies as announced by the Federal Reserve Bank of New York for     
customs purposes (the "Noon Buying Rate") on December 31, 2002. These           
translations should not be construed as a representation that the euro amounts  
actually represent such dollar amounts or could be converted into dollars at    
the rate indicated. On April 17, 2003, the Noon Buying Rate was EUR 0.9156 =    
USD 1.00.                                                                       

In order to utilize the "Safe Harbor" provisions of the United States Private   
Securities Litigation Reform Act of 1995, Akzo Nobel is providing the following 
cautionary statement. This document contains certain forward-looking statements 
with respect to the financial condition, results of operations and business of  
Akzo Nobel and certain of the plans and objectives of Akzo Nobel with respect   
to these items. These statements may generally, but not always, be identified   
by the use of words such as "anticipate", "assume", "intend", "plan",           
"project", "should", "expect", "estimate", "believe" or similar expressions. In 
particular, among other statements, certain statements in Item 4 "Information   
on the Company" with regard to strategy, management objectives, including       
return on investment targets, market trends, market standing, market share      
estimates based on management's estimates, the product volumes, (future         
spending on) environmental compliance or remediation, Health, Safety and        
Environment targets, and the Pharma pipeline, and the statements in Item 8      
"Financial Information" with regard to the outcome of disputes with tax         
authorities, pending or future legal or regulatory proceedings, including the   
antitrust investigations and other potential related lawsuits and their effect  
on the Company and those in Item 5 "Operating and Financial Review and          
Prospects" with regard to trends in results of operations, margins, overall     
market trends, risk management, exchange rates and objectives such as return on 
capital are forward-looking in nature as are all statements under "Forward      
looking statement on 2003" and Item 11 "Quantitative and Qualitative            
Disclosures about Market Risk".                                                 

By their nature, forward-looking statements involve risk and uncertainty        
because they relate to events and depend on circumstances that will occur in    
the future. There are a number of factors that could cause actual results and   
developments to differ materially from those expressed or implied by these      
forward looking statements. These factors include, but are not limited to,      
levels of business spending in major economies (as well as other developments   
in the economies of the                                                         

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4                                                                               

Company's markets in Asia, Latin America, North America and Western Europe),    
the development in market value of pension plan assets, governmental            
regulations, changes in customer needs, the levels of marketing expenditures by 
Akzo Nobel and its competitors, the introduction of new products by             
competitors, raw materials and employee costs, future foreign exchange and      
interest rates, changes in tax rates and product regulation, future business    
combinations, acquisitions or dispositions, environmental liabilities, and the  
outcome of tax disputes, antitrust investigations and potential product         
liability claims and other lawsuits, and wars and acts of terrorism or          
sabotage.                                                                       

Statements made in Item 4 "Information on the Company", referring to Akzo       
Nobel's competitive position are based on the Company's belief, and in some     
cases rely on a range of sources, including analyst's reports, independent      
market studies and Akzo Nobel's internal assessment of market share based on    
publicly available information about the financial results and performance of   
market participants unless otherwise noted. Such references to the Company's    
positioning generally refer to its market share based on sales.                 

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                   

Not applicable.                                                                 

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                 

Not applicable.                                                                 

Item 3. KEY INFORMATION                                                         

A. SELECTED CONSOLIDATED FINANCIAL INFORMATION                                  

The selected financial data set forth on the following pages are derived from   
previously published financial information of Akzo Nobel, including the         
consolidated financial statements, which appear elsewhere in this annual report 
and which have been translated into euros using the exchange rate fixed for     
Netherlands guilders and the euro on January 1, 1999. The selected financial    
data should be read in conjunction with, and are qualified in their entirety by 
reference to, such financial statements, including the notes thereto.           

The audited consolidated financial statements of Akzo Nobel as of and for each  
of the five years in the period ended December 31, 2002, have been audited by   
KPMG Accountants N.V., independent auditors. Reference is made to Note 21 of    
the Notes to the Consolidated Financial Statements regarding differences        
between NL GAAP and US GAAP that affected Akzo Nobel's net income and           
shareholders' equity.                                                           

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                                                                               5

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---------------------------------------------------------------------------------------------------------------------- 
                                                              Selected financial data for the years ended December 31, 
In millions, except per share amounts                                    2002   2002    2001    2000     1999     1998 
---------------------------------------------------------------------------------------------------------------------- 
                                                                       USD(a)    EUR     EUR     EUR      EUR      EUR 
Consolidated Income data:                                                                                              
Amounts in accordance with NL GAAP:*                                                                                   

Net sales                                                             14,662  14,002  14,110  14,003   14,432   12,482 

Operating income before nonrecurring items (b)                         1,562   1,492   1,571   1,641    1,238    1,147 

Operating income, after nonrecurring items (b)                         1,426   1,362   1,122   1,557    1,197      982 

Income before nonrecurring and extraordinary items, less income taxes    971     927     966     999      722      677 

Extraordinary items less income taxes (c)                                (77)    (74)   (259)     (9)    (508)    (129)

Net income after nonrecurring and extraordinary items                    857     818     671     947      189      532 

Basic earnings per share / ADS (d)                                      3.00    2.86    2.35    3.31     0.66     1.86 

Amounts in accordance with US GAAP (e):                                                                                

Net income / (loss)                                                      901     860     448     745     (627)     391 

Basic earnings / (loss) per share / ADS (d)                             3.15    3.01    1.57    2.61    (2.20)    1.37 

Diluted earnings / (loss) per share / ADS (d)                           3.14    3.00    1.56    2.60    (2.20)    1.37 

Consolidated Balance Sheet data:                                                                                       

Amounts in accordance with NL GAAP*:                                                                                   
Total assets                                                          13,392  12,789  12,925  12,707   12,643   12,528 

Long-term borrowings                                                   2,160   2,063   1,941   2,137    2,459    2,490 

Shareholders' equity                                                   2,197   2,098   2,878   2,694    2,082    2,101 

Shareholders' equity in accordance with US GAAP:                       5,712   5,455   6,362   6,368    5,987    6,254 
---------------------------------------------------------------------------------------------------------------------- 

(a) - (e): see accompanying notes on next page                                  

* Prior years have been restated for changes in accounting principles.          
Reference is made to "Item 5. Operating and Financial Review and Prospects -
Changes in Accounting Principles".                                          

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6                                                                               

(a)  Amounts in this column have been translated solely for the convenience of  
 the reader at the Noon Buying Rate on December 31, 2002, of EUR 0.955 =
USD 1.00.                                                             

(b)  Nonrecurring items relate to income and expenses resulting from normal     
    business operations, which, because of their size or nature, are disclosed
    separately to give a better understanding of the underlying result for the
   period. These include items such as restructuring and impairment charges,
and significant gains and losses on the disposal of businesses, not   
meeting the requirements for extraordinary items.                     

(c)  The extraordinary items for NL GAAP would not be considered extraordinary  
  under US GAAP. The pre-tax effect of such items would have been included
as part of operating income for US GAAP.                              

(d)  American Depositary Shares.                                                

(e)  Earnings per share amounts under US GAAP are calculated after deducting    
priority and preferred dividends from earnings.                       

The table below sets forth the number of common shares outstanding and the      
amounts of interim, final and total dividends declared (and the U.S.-dollar     
equivalents) on the common shares in respect of the fiscal years indicated.     

                                                                [Download Table]


                                                                                    
------------------------------------------------------------------------------------

                Number of shares           Dividends per common share               
Year ended                                       EUR                    USD*        
December 31,   Average   End of period  Interim  Final  Total  Interim  Final  Total
------------------------------------------------------------------------------------
1998        285,296,603    285,320,200     0.30   0.68   0.98     0.34   0.79   1.14
1999        285,441,344    285,885,524     0.30   0.70   1.00     0.30   0.70   1.00
2000        285,902,574    285,937,700     0.30   0.90   1.20     0.28   0.84   1.11
2001        285,888,385    285,854,813     0.30   0.90   1.20     0.26   0.79   1.06
2002        285,827,092    285,691,957     0.30   0.90   1.20     0.32   0.94   1.26
------------------------------------------------------------------------------------

* Dividends per common share in U.S. dollars are based on the Noon Buying Rate  
at December 31 of each year.                                                

The following table sets forth for the fiscal periods indicated the average     
exchange rates for U.S. dollars into euros per dollar based on the applicable   
Noon Buying Rate. The 1998 figure has been converted into euros using the fixed 
conversion rate, which became effective on January 1, 1999 (EUR 1 = NLG         
2.20371).                                                                       

                                                                [Download Table]


                                          
------------------------------------------
Year ended                      Average*  
December 31,                              
------------------------------------------
1998                                0.90  
1999                                0.94  
2000                                1.08  
2001                                1.14  
2002                                0.96  
------------------------------------------

* The average of the Noon Buying Rates on the last day of each month during the 
period.                                                                         

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                                                                               7

The following table sets forth for the months indicated the high and low rates  
for U.S. dollars expressed in euros per dollar.                                 

                                                                [Download Table]

---------------------------------------------
                                             
                        High             Low 

October 2002             1.03            1.01
November 2002            1.08            0.98
December 2002            1.01            0.95
January 2003             0.97            0.92
February 2003            0.94            0.91
March 2003               0.95            0.90
---------------------------------------------

On April 17, 2003, the noon buying Rate was EUR 0.9156 = USD 1.00.              

As dividends, if any, will be paid in euros, exchange rate fluctuations may     
affect the USD amounts received by holders of ADS's upon conversion by the      
depositary of such dividends.                                                   

B. CAPITALIZATION AND INDEBTEDNESS                                              

Not applicable.                                                                 

C. REASONS FOR THE OFFER AND USE OF PROCEEDS                                    

Not applicable.                                                                 

D. RISK FACTORS                                                                 

This section describes some of the risks that could affect the Company's        
business. The factors below should be considered in connection with any         
forward-looking statements in the Company's Annual Report on Form 20-F and the  
cautionary statements contained in the introduction on pages 3 and 4. Forward   
looking statements can be identified generally as those containing words such   
as "anticipate", "assume", "intend", "plan", "project", "should", "expect",     
"estimate", "believe", and words and terms of similar substance in connection   
with any discussion of future operating or financial performance.               

The risks below are not the only ones that Akzo Nobel faces. Some risks are not 
yet known to Akzo Nobel and some that Akzo Nobel does not currently believe to  
be material could later turn out to be material. All of these risks could       
materially affect Akzo Nobel's businesses, revenues, operating income, net      
income, net assets and liquidity and capital resources.                         

The factors that could cause actual results to differ materially include the    
following:                                                                      

The Company may face intense competition from new products and from lower-cost  
generic products.                                                               

The Company's products that are under patent protection face competition from   
competitors' proprietary products. This competition may increase as new         
products enter the market. The Company faces increasing competition from lower- 
cost generic products after patents on its products expire. Loss of patent      
protection typically leads to loss of sales in the product's markets and could  
affect the Company's future results.                                            

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8                                                                               

In 2002, the Company lost an important court case on its major product          
Remeron(R) in the United States. This will lead to increased                    
competition in the United States from generic pharmaceutical companies who will 
produce and distribute generic versions of this product. U.S. revenues from     
Remeron(R) accounted for approximately 11 percent of revenues from Akzo Nobel's 
Pharma business in the financial year 2002.                                     

As new products enter the market, the Company's products may become obsolete or 
competitors' products may be more effective or more effectively marketed and    
sold than its own products. If Akzo Nobel fails to maintain its competitive     
position, this could have a material adverse effect on its business and results 
of operations.                                                                  

The Company's research and development efforts may not succeed or its           
competitors may develop more effective or successful products.                  

In order to remain competitive, the Company must commit substantial resources   
each year to research and development through its dedicated resources as well   
as through various collaborations with third parties. Ongoing investments in    
new product launches and research and development for future products could     
produce higher costs without a proportional increase in revenues. Especially in 
the Pharma businesses, the research and development process can take from six   
to fourteen years, from discovery to commercial product launch. This process is 
conducted in various stages, and during each stage there is a substantial risk  
that the Company will not achieve its goals and accordingly may abandon a       
product for which it has spent substantial amounts. In this context it should   
be noted that the 2001 report prepared for the European Commission, entitled    
"Global Competitiveness in Pharmaceuticals, a European Perspective," concluded  
that European pharmaceutical companies have not only been losing                
competitiveness to their U.S. peers, but also that this trend has intensified.  
Unlike the U.S.-based multinationals, the European pharmaceutical companies     
still lack the background and leverage of a single domestic (European) market.  
The report also concluded that Europe has been less effective than the United   
States in encouraging growth of new technology suppliers and innovation         
specialists in such fields as combinatorial chemistry, genomics, and high-      
throughput screening.                                                           

If the Company fails to continue developing commercially successful products,   
this could have a material adverse effect on the Company's business and results 
of operations. If its competitors develop more effective products or a greater  
number of successful new products, or if the competitive position of its        
European operations changes in a negative way, this could also have a material  
adverse effect on the Company's business and results of operations. So far, the 
introduction of two new FDA-approved Organon products, Arixtra(R) and           
NuvaRing(R), in the US market have taken off slower than expected.              
It can also be the case that due to unwanted side effects of pharmaceutical     
products, in particular, which appear at a later stage after introduction of a  
product, the Company may decide or may be forced to withdraw a certain product  
from the market. This also could have a material adverse affect on its business 
and results of operation.                                                       

Product regulation may adversely affect the Company's ability to bring new      
products to market.                                                             

The Company and its competitors are subject to strict government controls on    
the development, manufacture, labeling, distribution and marketing of products. 
The Company must obtain and maintain regulatory approval for its pharmaceutical 
and other products from regulatory agencies before certain products may be sold 
in a particular jurisdiction. The submission of an application to a regulatory  
authority does not guarantee that a license to market the product will be       
granted. Each authority may impose its own requirements and delay or refuse to  
grant approval, even though a product has been approved by another country. In  
the Company's principal markets, the approval process for a new product is      
complex, lengthy                                                                

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                                                                               9

and expensive. For pharmaceutical products, the time taken to obtain approval   
varies by country but generally takes from eight months to several years from   
the date of application. Regulatory delays, the inability to complete clinical  
trials successfully, claims and concerns about safety and efficacy, new         
discoveries, patents and products of competitors and related patent disputes    
and claims about adverse side effects are only a few of the factors that could  
adversely affect the realization of product registration. This increases the    
Company's cost in developing new products and increases the risk that it will   
not succeed in selling them successfully. In this respect, the Company's        
planned introduction of the new CNS product Variza(TM) (gepirone ER) was        
delayed as it did not yet receive FDA approval.                                 
In light of the current uncertainties in the Hormone replacement therapy (HRT)  
area, a delay of the FDA filing of Xyvion(TM) into 2006 is to be expected.      

Akzo Nobel's business will continue to expose it to risks of environmental      
liabilities                                                                     

The Company uses hazardous materials, chemicals, viruses and toxic compounds in 
its product development programs and manufacturing processes, which have        
exposed it, and in the future could expose it, to risks of accidental           
contamination and events of noncompliance with environmental laws and           
regulatory enforcement, and personal injury and property damage claims          
resulting therefrom. If an accident occurred or if the Company were to discover 
contamination caused by prior operations, it could be liable for cleanup        
obligations, damages or fines, which could have an adverse effect on its        
business and results of operations.                                             

The environmental laws of many jurisdictions impose actual and potential        
obligations on the Company to remediate contaminated sites. These obligations   
may relate to sites:                                                            

- that the Company currently owns or operates;                                  
- that the Company formerly owned or operated; or                               
- where waste from the Company's operations was disposed.                       

These environmental remediation obligations could significantly reduce the      
Company's operating results. In particular, the provisions and accruals for     
these obligations may be insufficient if the assumptions underlying the         
accruals prove incorrect or if the Company is held responsible for additional,  
currently undiscovered contamination.                                           

Stricter environmental, safety and health laws and enforcement policies could   
result in substantial costs and increase potential liabilities of the Company,  
and could subject the Company's handling, manufacture, use, reuse or disposal   
of substances or pollutants to more rigorous scrutiny than is currently the     
case. Consequently, compliance with these laws could result in significant      
capital expenditures as well as other costs and liabilities, thereby harming    
Akzo Nobel's business and operating results.                                    

The Company will be responsible for any liabilities arising out of antitrust    
litigation.                                                                     

Akzo Nobel is involved in investigations by the antitrust authorities in the    
United States, Canada, and the European Union into alleged violations of the    
respective antitrust laws for certain products in these jurisdictions. In       
addition, the Company is involved in civil damage claims in relation to some of 
these alleged antitrust violations. Fines, civil damage settlements, and legal  
costs incurred in 2002 in connection with these cases amounted to EUR 9 million 
(2001: EUR 59 million). Based on an estimate of the probable fines, civil       
damages, and costs to be paid over a number of years to come - taking into      
account legal advice and the current facts and circumstances - the Company had  
a provision and accrual at December 31, 2002, amounting to EUR 102 million      
(2001: EUR 111 million).                                                        

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10                                                                              

However, it should be understood, that in light of future developments such as  
(a) the outcome of the investigations of the various antitrust authorities, (b) 
potential additional lawsuits by (indirect) purchasers, (c) possible future     
civil settlements, (d) the failure to satisfy the conditions of any future      
class action settlement, and (e) adverse rulings or judgments in the pending    
investigations or in related civil suits, these antitrust matters could result  
in additional liabilities and related costs. The Company at this point in time  
cannot estimate any additional amount of loss or range of loss in excess of the 
recorded amounts with sufficient certainty to allow such amount or range of     
amounts to be meaningful. Moreover, the aforementioned liabilities are          
typically paid over a number of years and the timing of such payments cannot be 
predicted with confidence. The Company believes that the potential aggregate    
amount of any additional fines and civil damages to be paid will not materially 
affect the Company's financial position. The aggregate amount, however, could   
be material to the Company's results of operations in any one accounting        
period.                                                                         

The outcome of tax disputes, litigation and regulatory action could adversely   
affect Akzo Nobel's business and results of operations.                         

The Company brought claims against certain generic drug manufacturers in the    
United States under the U.S. Hatch-Waxman Act, alleging infringement by such    
manufacturers of the Company's U.S. patent protecting the use of mirtazapine    
(Remeron(R)) in combination with one or more SSRI's for the treatment of        
depression. In two of the patent infringement cases brought by the Company, the 
Court granted summary judgment of noninfringement in favor of the defendants.   
In light of recent new case law in an unrelated case providing guidance         
regarding inducement to infringe issue under the Hatch-Waxman Act, the Company  
has decided not to pursue further any actions and to withdraw all pending cases 
based on infringement of the above reference patent against the generic drug    
manufacturers.                                                                  

Some generic drug manufacturers sued by the Company have brought antitrust      
counterclaims against the Company in the United States. In addition, antitrust  
claims have been filed against the Company in the United States on behalf of    
classes of (in)direct purchasers of Remeron(R). The Company is aggressively     
defending these claims.                                                         

There are pending against Akzo Nobel N.V. and its subsidiaries a number of      
other claims, all of which the Company is contesting. The Company is also       
involved in disputes with tax authorities in several jurisdictions.             

While the outcome of these claims and disputes cannot be predicted with         
certainty, management believes, based upon legal advice and information         
received, that the final outcome will not materially affect the consolidated    
financial position but could be material to the Company's result of operations  
in any one accounting period.                                                   

Risks in production processes can adversely affect the Company's results of     
operations.                                                                     

Certain chemical production processes are hazardous, and natural disasters,     
operator error or other occurrences could result in explosions, fires, or       
equipment failure, which could result in injury or death, or damage to property 
or the environment. Losses and liabilities arising from such events, in so far  
as not covered by insurance, would significantly reduce the Company's revenues  
or increase costs and could have a material adverse effect on its operations or 
financial condition.                                                            

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Inability to access raw materials, growth in cost and expenses for raw          
materials, petroleum and natural gas and changes in product mix may adversely   
influence the future results of the Company.                                    

Important raw materials or auxiliary materials for the Company's production     
processes are salt, petroleum and petroleum derivatives, natural gas, titanium  
dioxide and electricity. Some of these components are available only from a     
small source of suppliers. The Company cannot assure that it will be able to    
establish or maintain good relationships with such suppliers or that such       
suppliers will continue to exist or be able to supply ingredients in conformity 
with regulatory requirements. In addition, growth in the costs and expenses of  
these components resulting from a shortage or a change in Akzo Nobel's product  
mix may adversely influence the Company's business and financial results. Akzo  
Nobel is sensitive to price movements in raw materials. In particular, energy   
prices pose a risk, presently aggravated by the armed conflict in the Middle    
East.                                                                           

Seasonality may adversely affect the operating results of the Company's         
Coatings business.                                                              

A portion of the Company's Coatings business is seasonal, with sales and        
earnings being relatively higher during the outdoor season and lower during the 
indoor season. The operating results may be harmed if bad weather delays the    
outdoor season in the major markets in which the Company operates and the       
Company is not able to offset during the corresponding financial year the lag   
in earnings resulting from such delay.                                          

A failure to manage expansion effectively could adversely affect the Company's  
business.                                                                       

Management of the Company's growth, as well as the commencement of commercial   
manufacturing and marketing of the Company's forthcoming products, will require 
continued expansion of the Company's systems and internal controls and an       
increase in the Company's manufacturing, marketing and sales operations. In     
addition, the Company intends to continue to add new personnel. Any failure to  
manage growth effectively and integrate new personnel on a timely basis could   
adversely affect the Company's business.                                        

Akzo Nobel may not be able to identify future acquisitions or may not be        
successful in integrating acquired businesses.                                  

As part of its business strategy, the Company periodically reviews acquisition  
prospects and strategic alliances that it expects to complement its existing    
businesses or increase its revenues. The Company does not know if it will be    
able to identify any future acquisitions, joint ventures or alliances. A        
failure to identify future transactions may impair the Company's future growth. 

If the Company is unable to retain key personnel or attract new personnel, it   
could have an adverse effect on the Company's business.                         

The Company's future operating results depend in part upon its ability to       
attract and retain qualified management, scientific, technical, marketing, and  
support personnel. Competition for such personnel is intense, and there can be  
no assurance that the Company will be able to continue to attract and retain    
such personnel.                                                                 

Regulations which limit the prices we may charge for our products can reduce    
the Company's revenues and adversely affect its business and results of         
operations.                                                                     

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12                                                                              

In addition to normal price competition in the marketplace, the prices of Akzo  
Nobel's pharmaceutical products are restricted by price controls imposed by     
governments and health care providers in most countries. Price controls operate 
differently in different countries and can cause wide variations in prices      
between markets. Currency fluctuations can aggravate these differences. The     
existence of price controls can limit the revenues Akzo Nobel earns from its    
products and may have an adverse effect on its business and results of          
operations.                                                                     

About half of the Company's earnings are derived from the healthcare markets.   
In many of these countries the prices for our products are regulated. In the    
United States, Medicare reform could result in de facto price controls on       
prescription drugs. In Europe, the Company's operations are also subject to     
price and market regulations. Many governments are introducing healthcare       
reforms in an attempt to curb increasing healthcare costs. In Japan, where Akzo 
Nobel also operates, governmental price cut rounds are introduced biannually.   
In response to rising healthcare costs, many governments and private medical    
care providers, such as HMOs, have instituted reimbursement schemes that favor  
the substitution of generic pharmaceuticals for more expensive brand-name       
pharmaceuticals. In the United States, generic substitution statutes have been  
enacted by virtually all states and permit or require the dispensing pharmacist 
to substitute a less expensive generic drug instead of the original brand-name  
drug. As a result, the Company expects pressures on its pricing and operating   
results to continue.                                                            

Bad publicity and damage to the Company's brands could adversely affect its     
business and results of operations.                                             

The reputation of the Company's brands is critical to its business. The success 
in promoting and enhancing its brands is dependent on providing safe high-      
quality products, particularly in the pharma business. If it fails to           
successfully promote its brands, or if it receives bad publicity as a result of 
a product liability case or publicized health or other risks associated with    
its products, the value of the Company's brands will be diminished. This could  
have a material and adverse effect on the business and results of operations.   

Product liability claims could adversely affect Akzo Nobel's business and       
results of operations.                                                          

Given the widespread impact that brand-name drugs have on the health of patient 
populations, pharmaceutical and medical devices companies have historically     
been subject to large product-liability claims and settlements caused by the    
use of their products. The Company also runs the risk of product liability      
claims from its Coatings and Chemicals products. The Company is currently       
involved in a number of product liability cases claiming damages as a result of 
its products. It believes that any reasonably foreseeable unaccrued costs and   
liabilities associated with such matters will not have a material adverse       
effect on the Company's consolidated financial position but could be materially 
adverse to its results of operations. There can, however, be no assurance that  
a future product liability claim or series of claims that are not fully covered 
by insurance would not have an adverse effect on the Company's business or      
results of operations.                                                          

Exchange rate fluctuations can have a harmful impact on the Company's financial 
results.                                                                        

The Company has operations in more than 80 countries throughout the world. As a 
result, a substantial portion of its assets, liabilities, revenues and expenses 
are denominated in various currencies other than the euro, principally the U.S. 
dollar, the British pound, the Swedish krona, the Japanese yen, and Latin       
American and Asian currencies. Because the Company's financial statements are   
denominated in euro, fluctuations in currency exchange rates could have a       
material impact on its reported results.                                        

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                                                                              13

The Company's financial condition and results of operations could be adversely  
affected if the Company does not successfully mitigate risks associated with    
interest rate changes.                                                          

A substantial portion of the Company's investments, loans and borrowings bear   
interest on a non-fixed basis. Accordingly, changes in interest rates can       
affect the cost of these interest-bearing investments, loans and borrowings.    
The Company mitigates interest risk by financing noncurrent assets and a        
certain portion of current assets with equity, long-term liabilities and long-  
term borrowings with fixed interest rates. In the event that this strategy is   
not successful, the business, financial condition and operating results of the  
Company could be materially and adversely affected as a result of changes in    
interest rates.                                                                 

Adverse stock market developments may affect assets of pension funds, causing   
higher pension charges and pension premiums payable.                            

The Company has a number of defined benefit pension plans, covering the         
majority of its employees. Plan assets principally consist of long-term         
interest-earning investments, quoted equity securities, and real estate. The    
performance of stock markets could have a material impact on the Company's      
financial statements as some 40 percent of plan assets are equity securities.   
The poor performance of the stock markets in 2001 and 2002 had a negative       
influence on the investment results of Akzo Nobel's pension funds, resulting in 
additional pension charges, pension premiums and payments to such funds. The    
pension charges in 2002 were EUR 80 million higher than in 2001, while pension  
charges for 2003 will be EUR 130 million higher than in 2002. Furthermore, the  
Company recognized an additional minimum unfunded pension liability of          
approximately EUR 1.8 billion (pre-tax), at December 31, 2002                   

A downgrading by credit rating agencies could result in higher financing costs  
or reduced availability of credit                                               

At present the Company's long-term credit rating form Standard & Poor's is A-   
with a short-term rating of A-2. The current long-term credit rating from       
Moody's is A3 and their short-term rating is P-2. All ratings mentioned have a  
so-called "negative outlook" to them.                                           
The present rating is 3 notches above the so-called high-yield zone. However,   
if the Company's rating, due to whatever circumstances would approach or enter  
the high-yield zone, this will not only result in increased financing cost for  
the Company, but could also reduce availability of credit, especially at        
commercially acceptable rates.                                                  

A security rating is not a recommendation to buy, sell or hold securities. The  
rating may be subject to revision or withdrawal at any time by the rating       
organization. Each rating should be valued independently of any other rating.   

Because the Company conducts international operations, it is exposed to a       
variety of risks, many of them beyond its control, that could adversely affect  
its business.                                                                   

Akzo Nobel is a global company with operations in Europe, North America, Latin  
America, Asia, the Middle East and Africa. In addition to general business risk 
and the risks described in this section, the Company's international operations 
are subject to a variety of potential risks including: political and economic   
instability, the risk of hyperinflation in some countries, currency and         
interest-rate fluctuations, lack of local business experience, difficulty in    
enforcing property rights, local security concerns, and language and other      
cultural barriers. In addition, changes in the tax laws of some countries where 
the Company does business can affect the Company's net income.                  

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14                                                                              

Item 4. INFORMATION ON THE COMPANY                                              

Akzo Nobel is a corporation organized under the law of the Netherlands for an   
indefinite period. The principal executive offices of Akzo Nobel N.V. are       
located at Velperweg 76, 6824 BM Arnhem, the Netherlands. Its telephone number  
is +31 (26) 366 4433 and the fax number is +31 (26) 366 3250.                   
The E-mail address is ACC@akzonobel.com. Any correspondence regarding this      
Annual Report on Form 20-F should be directed to the Company Secretary.         

The name and address of the person authorized to receive notices and            
communications from the U.S. Securities and Exchange Commission is:             
A. Jan A.J. Eijsbouts, General Counsel                                      
Akzo Nobel N.V.                                                             
Velperweg 76, 6824 BM  Arnhem                                               
The Netherlands                                                             

Copies to:                                                                  
Edwin D. Williamson, Esq.                                                   
Sullivan & Cromwell LLP                                                     
1701 Pennsylvania Avenue, N.W.                                              
Washington, D.C. 20006                                                      
202-956 7505                                                                

OVERVIEW                                                                        

Akzo Nobel is an international company that serves customers around the world   
with healthcare products, coatings, and chemicals.                              

Headquartered in the Netherlands, Akzo Nobel had activities in more than 80     
countries and employed 67,000 people during 2002. Sales in 2002 were EUR 14.0   
billion, with Pharma, Coatings, and Chemicals accounting for EUR 4.0 billion,   
EUR 5.5 billion, and EUR 4.6 billion, respectively.                             

In the pharmaceutical industry, Akzo Nobel is smaller than many of its          
competitors, but it has significant positions in products for female            
reproductive therapy and anesthesiology. Akzo Nobel believes that based on      
sales it is the largest coatings producer in the world; its products and        
markets vary widely from architectural paints in some countries to industrial   
and automotive coatings in others. In the chemical products industry, Akzo      
Nobel is a significant competitive factor in a number of markets, and on a      
global basis the Company competes with a number of larger chemical companies.   

Demand for Akzo Nobel's products, particularly its chemical and coatings        
products, is generally reflective of the overall health of industry in Western  
Europe and the United States and is, except for certain Coatings activities,    
generally not seasonal in nature.                                               

It is Akzo Nobel's objective to develop or acquire new and defend existing      
leading positions in its markets, while maintaining structural long-term        
profitability. In addition to its core business, the Company focuses on the     
development of new and improved products in major growth sectors that draw on   
the Company's technological and marketing know-how. The Company is pursuing     
expansion in Eastern Europe, South-East Asia and Latin America. Where the       
Company cannot achieve leading positions on its own, management may seek        
acquisitions, alliances or divestments, thus striving for structural, long-term 
increases in shareholder value.                                                 

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                                                                              15

A. HISTORY AND DEVELOPMENT OF THE COMPANY                                       

Akzo was created in 1969, out of the merger between AKU N.V. ("AKU") and        
Koninklijke Zout-Organon N.V., and in 1994 it was renamed Akzo Nobel, after the 
merger with Nobel Industries AB ("Nobel").                                      

AKU N.V. was founded in 1911 under the name of N.V. Nederlandsche               
Kunstzijdefabriek. Over the years this company grew into an international       
concern with interests in the field of cellulose fibers and, following the      
Second World War, synthetic textile and carpet fibers as well as industrial     
fibers. At the time of the 1969 merger, AKU's principal countries of operation  
were the Netherlands, Germany, the United States, the United Kingdom, Spain and 
several Latin American countries, where activities were often carried out       
through joint ventures with local partners.                                     

Koninklijke Zout-Organon N.V. was set up in 1967 as a holding company in        
connection with the merger between Koninklijke Zout-Ketjen N.V. and             
N.V. Koninklijke Zwanenberg-Organon. Koninklijke Zout-Ketjen N.V. had interests 
in companies active in salt refining, basic chemicals, specialty chemicals and  
coatings. While these companies were mainly active in the Netherlands, they had 
built up major export positions at the time of the merger. N.V. Koninklijke     
Zwanenberg-Organon consisted of companies active in food/nonfood products and   
chemical products and of pharmaceutical companies producing brand-name drugs,   
nonprescription products and raw materials for the pharmaceutical industry.     

Nobel was formed in 1984 through the merger of Bofors (established in 1646) and 
KemaNobel, founded in 1871. At the time of the merger with Akzo in 1994, Nobel  
was a leading European producer of chemicals (pulp and paper chemicals and      
surfactants) and coatings (paints for professional and consumer markets,        
industrial coatings and industrial products). Nobel had operations in more than 
30 countries.                                                                   

In July 1998, Akzo Nobel acquired Courtaulds plc ("Courtaulds"), an             
international chemical company with leading positions in high-tech industrial   
coatings and man-made fibers. Its best known brands, International Paints,      
Courtelle acrylic fibers, and Tencel(R), a new cellulosic fiber, were included  
in the acquisition. Courtaulds, which was founded in 1816 as a silk weaving     
company, pioneered the global man-made fiber industry at the beginning of the   
20th century. In the 1960s Courtaulds acquired International Paint and Pinchin  
Johnson.                                                                        

In November 1999, the Company acquired Hoechst Roussel Vet ("HR Vet"), the      
veterinary business of Hoechst AG. Through this acquisition, Intervet, the      
veterinary business of Akzo Nobel became a significant player in the veterinary 
business.                                                                       

After the Courtaulds acquisition, the fibers operations of Akzo Nobel and       
Courtaulds were combined into a separate organization, named Acordis. At        
December 31, 1999, Acordis was sold to a newly established company. Akzo Nobel  
retained a 21 percent stake in this company.                                    

In June 2001, Covance Biotechnology Services Inc (CBSI), North Carolina was     
acquired for EUR 223 million. Through this acquisition, Diosynth established    
the critical mass to play a leading role in the strongly developing             
biopharmaceutical market segment.                                               

At the end of June 2001, the diagnostic business of Organon Teknika was         
divested to bioMerieux for EUR 334 million. In addition, the activities of the  
business unit Printing Inks were divested for EUR 75 million, effective         
October 31, 2001.                                                               

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16                                                                              

In April 2002, the Awlgrip(R) marine and aerospace coatings business was        
acquired for EUR 27 million.                                                    

At the end of June 2002, the Industrial Specialties business of Crompton        
Corporation, including operations in the United States, Europe and Asia, was    
acquired for EUR 96 million.                                                    

At the end of September 2002, the liquid pharmaceuticals manufacturing business 
Rosemont Pharmaceuticals Ltd in the United Kingdom was divested for EUR 102     
million, and effective September 2002, Ferro's powder coatings businesses in    
the Americas and Asia Pacific were acquired for EUR 70 million.                 

B. BUSINESS OVERVIEW                                                            

Akzo Nobel has a two-layer organization, with the Board of Management as the    
highest executive authority. Operations are carried out in business units       
clustered in three groups on the basis of affinity between activities: Pharma,  
Coatings and Chemicals.                                                         

At the corporate level, key tasks are coordinated in the fields of strategy;    
finance and control; human resources; technology; legal affairs and             
intellectual property; communications; health, safety, and environment;         
information management; and risk and insurance management.                      

STRATEGY                                                                        

Akzo Nobel is a diversified multinational group of companies. We focus on       
leadership positions in selected markets on the strength of our entrepreneurial 
spirit and Business Principles. We consider our diversity an asset, the real    
value of which lies in our organization philosophy of strongly decentralized    
operating companies, combined with optimal use of our financial power, cyclical 
resilience, and collective know-how. Concentrating on sustained growth, we      
strengthen our market positions through a targeted investment policy,           
complementary acquisitions and, if necessary, restructuring measures.           

We continuously aim at striking a proper balance between overall size and the   
focus on our diverse activities. We strive to maintain strong growth in Pharma, 
further strengthen and expand our Coatings business-the world's largest in its  
industry-and concentrate on improving Chemicals' returns and cash flow. Our     
strategy is constantly being fine-tuned to optimize value creation, while a     
solid balance sheet structure and sound financial ratios are maintained.        

Pharma                                                                          
Pharma aims to continue its pattern of primarily organic growth, based on its   
strong commitment to R&D and its pipeline, which has created substantial value  
over the years. In addition, growth momentum will be supported by intensively   
pursuing opportunities for collaborations and product acquisitions. Our present 
portfolio enables us to exploit our extensive knowledge base, capitalize on our 
pipelines of innovative products, and harness critical mass in selected         
markets.                                                                        

Actions                                                                         
Our strategy is reflected in a double-digit average annual organic growth on an 
ongoing basis and an equally strong earnings gain over the last five years.     
Under a scenario of a temporary slowdown, we strive to bolster growth through   
new product launches-for example Arixtra(R) and NuvaRing(R)-from our pipeline.  
Simultaneously, cost cutting programs to safeguard our earnings level are       
implemented. Organon also moved its Executive Office to the United States, its  
most important market. Organic growth and acquisitions in the last few years    
have made Intervet the world's third largest supplier of veterinary products.   
Diosynth                                                                        

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                                                                              17

strengthened its position through CBSI acquired in 2001 and invested heavily in 
upstream and downstream processing capacity. In 2001 and 2002, Rosemont's       
generics activities in the United States and the United Kingdom were divested.  

Pharma's long-term financial targets are a return on sales of around 20 percent 
and return on investment of 40 percent.                                         

Coatings                                                                        
Major acquisitions in the last few years, combined with organic growth, has     
lifted Coatings to the world's number one position. We aim to strengthen this   
position through further organic growth and bolt-on acquisitions. Growth in     
mature markets is expected to remain in line with GDP. Opportunities are in     
emerging markets and in technology switches often driven by environmental       
considerations. In the fragmented worldwide coatings market, we, as the world   
leader, only represent 8 percent. This market is in a process of consolidation, 
in which our global positions in many fields should enable us to play a leading 
role.                                                                           

Actions                                                                         
In line with this strategy, Coatings' expansion efforts and investments in Asia 
resulted in improved positions and strong growth, particularly in China. The    
acquisitions of Ferro's powder coatings businesses in the Americas and Asia,    
the aerospace activities of U.S. Paint, a marine and protective coatings        
factory in Korea, and U.S. Paint Yacht bolstered our positions in these areas.  
Major restructuring programs, including some divestments and plant closures,    
and strong efforts to reduce working capital are geared to lift profitability.  

Coatings' long-term financial target is to achieve a 30 percent return on       
investment.                                                                     

Chemicals                                                                       
For Chemicals critical mass and leading positions in chosen segments are        
essential in the quite fragmented chemical industry. Our strategy is based on   
three cornerstones: concentrate on fewer growth areas, drive innovation, and    
inspire and develop our people. Our primary efforts focus on structural         
improvement of margins and cash flow through ongoing cost savings programs.     
Divestments, selective acquisitions, and generating sufficient cash flow to     
upgrade the portfolio are the leading principles. Growth efforts are directed   
at North America and Asia.                                                      

Actions                                                                         
The acquisition of the Crompton Industrial Specialties business in the United   
States, Europe, and Asia and the start-up of a grassroots monochloroacetic acid 
plant in China represent two important steps to support Chemicals' leading      
positions in these areas. Base Chemicals strengthened its position in the German
market by increasing its participation in ECI Elektro-Chemie from 50 percent to 
100 percent. In order to improve performance and cash flow, extensive           
restructurings, including plant closures such as the Stade, Germany, salt plant,
are being implemented, combined with a working capital reduction program.       

Chemicals is targeting a return over the business cycle of 2.5 percent over the 
cost of capital, which corresponds to a return on investment of about 17        
percent.                                                                        

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18                                                                              

BUSINESS UNITS                                                                  

The business units and their products (as at December 31, 2002) are summarized  
below:                                                                          

PHARMA                                                                          

Organon                                                                         
- Brand-name prescription pharmaceuticals in the fields of contraceptives and   
infertility treatment, hormone replacement therapy (HRT) and osteoporosis,  
antidepressants and antipsychotics, antithrombotics and muscle relaxants.   

Intervet                                                                        
- Veterinary products: vaccines, antiparasitics, and antiinfectives, specialty  
products for pets and livestock, and feed additives for livestock,          
endocrinological fertility products, corticosteroids, antibiotics and       
anti-mastitis products.                                                     

Diosynth                                                                        
- Complex active pharmaceutical ingredients based on chemicals and biochemical  
processes and generic medicines.                                            

COATINGS                                                                        

Decorative  Coatings                                                            
- Coatings for decoration and protection of architectural structures for        
professional uses and the do-it-yourself sector.                            

Industrial  Coatings*                                                           
- Liquid coatings for industrial application; aerospace coatings                

Industrial  Finishes                                                            
- Coatings for industrial applications on wood and sheet metal (coil coatings)  

Powder  Coatings                                                                
- Powder coatings for industrial application in architectural automotive,       
domestic appliance and other industrial markets such as coatings for pipes. 

Marine & Protective  Coatings                                                   
- Antifouling and other high-performance coatings for the shipbuilding, ship    
  repair and yacht markets; protective coatings and fire- retardant products for
heavy-duty applications, such as on oilrigs.                                

Car  Refinishes                                                                 
- Products and services for the automotive aftersales market and for commercial 
vehicles.                                                                   

Industrial  Products                                                            
- Industrial adhesives, resin-impregnated paper, and expandable microspheres.   

* As per January 1, 2003, the business unit Industrial Coatings has been        
dissolved. Aerospace activities have been transferred to Marine & Protective    
Coatings. Transportation Coatings were transferred to Car Refinishes.           

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                                                                              19

CHEMICALS                                                                       

Pulp and Paper Chemicals                                                        
- Pulp bleaching chemicals, notably sodium chlorate and hydrogen peroxide;      
 wet-end paper chemicals, such as sizing and retention agents and wet strength
resins.                                                                     

Functional Chemicals                                                            
- Monochloroacetic acid and derivatives, such as carboxymethyl cellulose; methyl
amines, choline chloride; ethylene amines; chelates; organophosphorus-based 
derivatives, notably flame-retardants for plastics and hydraulic fluids;    
carbon disulfide and thiocyanates; acid chlorides and lubrican chemicals.   

Surface Chemistry                                                               
- Cationic, nonionic, and anionic surfactants for detergents, biocides, wood    
preservation, personal care, and industrial cleaners; cellulosic surfactants
for paint and concrete; asphalt additives, viscose agents, animal feed      
additives and fatty acids.                                                  

Polymer Chemicals                                                               
- Initiators such as organic peroxides, metal alkyls, and Ziegler-Natta         
catalysts for the production of polymers, optical monomers and polymer      
additives.                                                                  

Resins                                                                          
- Synthetic resins for coatings and printing inks.                              

Catalysts                                                                       
- Refinery catalysts, technology and related services; catalysts for the        
petrochemical industry and custom-made catalysts.                           

Base Chemicals                                                                  
- Electrolysis products: notably chlorine, hydrochloric acid, methylen chloride,
chloroform. Other products: sulphur products and dimethylether.             

Salt                                                                            
- High quality salts for food processing, consumer, agriculture, water          
softening, pharmaceuticals, electrolysis, de-icing and other industries.    

Energy                                                                          
- Supply of energy (cogeneration) and other utilities.                          

ACTIVITIES OF AKZO NOBEL                                                        

Industry segment information                                                    

Prior years have been restated for changes in accounting principles. Reference  
is made to "Item 5. Operating and Financial Review and Prospects - Changes in   
Accounting Principles".                                                         

Nonrecurring items relate to income and expenses resulting from normal business 
operations, which, because of their size or nature, are disclosed separately to 
give a better understanding of the underlying result for the period. These      
include items such as restructuring and impairment charges, and significant     
gains and losses on the disposal of businesses, not meeting the requirements    
for extraordinary items.                                                        

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20                                                                              

Akzo Nobel's financial reporting and industry segment information consists of   
results from the following groups: "Pharma", "Coatings" and "Chemicals". The    
information presented below illustrates the relative importance of the          
individual groups.                                                              

                                                        [Enlarge/Download Table]

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                                                                                         Net sales           Operating income      
                                                                                                        before nonrecurring* items 
                                                                                                                                   
Millions of euros                                                                   2002     2001    2000    2002     2001    2000 
-----------------------------------------------------------------------------------------------------------------------------------
Pharma                                                                             4,008    4,044   3,839     768     831     765  
Coatings                                                                           5,521    5,591   5,568     465     426     447  
Chemicals                                                                          4,598    4,604   4,740     344     340     445  
Miscellaneous products, intragroup deliveries, non-allocated items and                                                             
eliminations                                                                        (125)    (129)   (144)    (85)    (26)    (16) 
-----------------------------------------------------------------------------------------------------------------------------------
Total                                                                             14,002   14,110  14,003   1,492   1,571   1,641  
-----------------------------------------------------------------------------------------------------------------------------------
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* Nonrecurring items relate to income and expenses resulting from normal        
business operations, which, because of their size or nature, are disclosed      
separately to give a better understanding of the underlying result for the      
period. These include items such as restructuring and impairment charges, and   
significant gains and losses on the disposal of businesses, not meeting the     
requirements for extraordinary items.                                           

                                                        [Enlarge/Download Table]

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                                                                                   Nonrecurring* items    Operating income,        
                                                                                                      after nonrecurring* items    
                                                                                                                                   
Millions of euros                                                                   2002   2001  2000    2002    2001    2000      
-----------------------------------------------------------------------------------------------------------------------------------
Pharma                                                                                21     41    (2)    747     790     767      
Coatings                                                                              19    200    13     446     226     434      
Chemicals                                                                             96    218    77     248     122     368      
Miscellaneous products, intragroup deliveries, non-allocated items and                                                             
eliminations                                                                          (6)   (10)   (4)    (79)    (16)    (12)     
-----------------------------------------------------------------------------------------------------------------------------------
Total                                                                                130    449    84   1,362   1,122   1,557      
-----------------------------------------------------------------------------------------------------------------------------------
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* Nonrecurring items relate to income and expenses resulting from normal        
business operations, which, because of their size or nature, are disclosed      
separately to give a better understanding of the underlying result for the      
period. These include items such as restructuring and impairment charges, and   
significant gains and losses on the disposal of businesses, not meeting the     
requirements for extraordinary items.                                           

                                                        [Enlarge/Download Table]

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                                                                                                     Property, plant and equipment  
                                                                                                                                    
                                                                                 Identifiable assets  Expenditures  Depreciation    
Millions of euros                                                                  2002   2001   2000 2002 2001 2000 2002 2001  2000
----------------------------------------------------------------------------------------------------------------------------------- 
Pharma                                                                            3,195  3,333  2,964  297  317  214  152  148  146 
Coatings                                                                          3,338  3,372  3,381  131  181  170  150  156  149 
Chemicals                                                                         3,557  3,837  3,953  248  310  329  311  320  323 
Miscellaneous products, nonallocated and eliminations, including cash and cash                                                      
 equivalents                                                                                                                        
                                                                                  2,208  1,808  1,736   13   14   12    9   11   13 
----------------------------------------------------------------------------------------------------------------------------------- 
                                                                                 12,298 12,350 12,034  689  822  725  622  635  631 
Nonconsolidated comp.                                                               491    575    673                               
----------------------------------------------------------------------------------------------------------------------------------- 
Total                                                                            12,789 12,925 12,707  689  822  725  622  635  631 
----------------------------------------------------------------------------------------------------------------------------------- 
----------------------------------------------------------------------------------------------------------------------------------- 

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                                                                              21

                                                        [Enlarge/Download Table]

Percent (%) of total net sales and total operating income                                               
--------------------------------------------------------------------------------------------------------
                                                                                                        
                                          Net sales         Operating income      Operating income      
                                                          before nonrecurring*   after nonrecurring*    
                                                                  items                 items           
                                       2002   2001   2000   2002  2001   2000   2002    2001   2000     
--------------------------------------------------------------------------------------------------------
Pharma                                  29    29     27      51    53    47      55     70      49      
Coatings                                39    39     40      31    27    27      33     20      28      
Chemicals                               33    33     34      23    22    27      18     11      24      
Miscellaneous products and nonallocated (1)   (1)    (1)     (5)   (2)   (1)     (6)    (1)     (1)     
--------------------------------------------------------------------------------------------------------
Total                                  100   100    100     100   100   100     100    100     100      
--------------------------------------------------------------------------------------------------------

* Nonrecurring items relate to income and expenses resulting from normal        
business operations, which, because of their size or nature, are disclosed      
separately to give a better understanding of the underlying result for the      
period. These include items such as restructuring and impairment charges, and   
significant gains and losses on the disposal of businesses, not meeting the     
requirements for extraordinary items.                                           

Below a summary of the activities of each group is given. For more details on   
Akzo Nobel's activities, reference is made to "Business Review and Developments 
at Business Units". See Item 5 "Operating and Financial Review and Prospects"   
for a discussion on factors affecting comparability between periods.            

Description of Pharma's business                                                

Akzo Nobel's healthcare activities extend around the world. It engages in       
research, development, manufacturing, sales, and service in strategic areas of  
human and animal healthcare. These include prescription medicines, veterinary   
products, as well as complex active pharmaceutical ingredients.                 

                                                        [Enlarge/Download Table]

                                                                                                                   
Major Product Lines               Key Products/Applications                 Competitive Position*                  

Prescription drugs,            -  Contraceptives, infertility treatment,    - Among top four suppliers of hormonal 
veterinary products, and          hormone replacement thereapy (HRT)          contraceptives, second largest in    
complex active pharmaceutical     and ostoporosis, CNS produts                infertility products; among top five 
ingredients.                      (antidepressants, antipsychotics),          players in HRT; building up positions
                                  antithrombotics, and muscle relaxants       in CNS and osteoporosis. World leader
                                                                              in neuromuscular relaxation;         
                                                                              entering the antithrombosis segment  
                               -  Veterinary vaccines, and pharmaceuticals  - The third- largest world supplier    
                                                                              of veterinary products; leading      
                                                                              in veterinary vaccines               
                               -  Complex active pharmaceutical             - Leading supplier of steroids and     
                                  ingredients                                 synthetic peptides, strong           
                                                                              in heparins, oligosaccharides, and   
                                                                              biopharmaceuticals                   


* See the cautionary statements under introduction on pages 3 and 4.            

Akzo Nobel's business unit Organon has an international reputation based on     
quality products and innovative R&D. It is among a very few international       
companies conducting research into contraception.                               

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22                                                                              

Sold as Desogen(R) in the United States, Marvelon(R) is one of the world's most 
prescribed contraceptive pills. However, sales of our oral contraceptives have  
been adversely affected by generic competition in the United States.            
NuvaRing(R), our contraceptive vaginal ring, was launched in the United States  
and Europe in 2002. The Company also produces fertility products and medicines  
for the treatment of menopausal complaints and, as innovator in the field of    
psychiatric drugs, is marketing a new-generation antidepressant (Remeron(R)).   
However, in December 2002 an unfavorable court ruling in the Remeron(R) case    
paved the way for our competitors to produce and distribute in the United       
States generic versions of this important Organon product.                      

Together with Sanofi-Synthelabo, the Company developed the new antithrombotic   
(pentasaccharide) Arixtra(R), which has been approved and launched in the U.S.  
and Europe. Arixtra(R) is currently approved for the prevention of thrombosis   
following hip and joint surgery. The process of hospital formulary approval for 
the introduction of Arixtra in the United States is time consuming. In March    
2003, the FDA granted a six-month priority review for a supplemental new drug   
application for Arixtra(R) for Prophylaxis of deep venous thrombosis, which may 
lead to pulmonary embolism, in patients undergoing hip fracture surgery,        
including extended prophylaxis.                                                 

In the United States, additional data requests by the FDA regarding Variza(TM)  
(Gepirone ER) has delayed its registration.                                     

Intervet focuses on the veterinary medicine market, with vaccines for cattle,   
pigs, sheep, horses, poultry, fish and pets, endocrine fertility products,      
corticosteroids and antibiotics, including injectors for treating mastitis and  
metritis. The acquisition of Hoechst Roussel Vet, in November 1999,             
complemented the product range with specialty medical products for both pets    
and livestock, and feed additives for livestock. Intervet has an international  
reputation and works closely with leading research institutes, universities,    
and other companies. In 2003, a new vaccine production facility near Kansas     
City is expected to be opened.                                                  

Diosynth is a leading manufacturer of complex active pharmaceutical             
ingredients, with production facilities in several countries. The company is    
active in biochemical extraction and purification, fermentation, industrial     
cell culture, and organic synthesis. Diosynth's main products are heparin,      
insulin, gonadotropic hormones, steroids, synthetic peptides, carbohydrates,    
and opiate analogs. Through the acquisition of CBSI, the Company believes that  
Diosynth now has sufficient size and products to play a leading role in the     
developing biopharmaceutical market segment.                                    

In 2002, we also decided to enter the human vaccine business because it is a    
growth market and because we can benefit from our experience in vaccines and    
biotechnology in general. Based on doses, Intervet is the largest vaccine       
producer in the world and in terms of sales it is number five. The start-up     
business, Nobilon, will be housed in a new vaccine production facility in       
Boxmeer, which is scheduled to be operational in mid-2003. Nobilon will focus   
initially on human vaccines. Sales by Nobilon from its own products, however,   
are not anticipated until after 2007. In the interim, it is expected the        
facility will be able to produce certain vaccines for third parties.            

The current research and development pipeline of Akzo Nobel Pharma is stated    
below. The content of the drug development portfolio will change over time as   
new compounds progress from research to development and from development to     
market. Owing to the nature of the drug development process, it is not unusual  
for some compounds, especially those in the early stages of investigation, to   
be terminated as they progress through development. The following is the        
current pipeline.                                                               

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                                                                              23

                                                                [Download Table]

                                                                                 
                            Products in the pipeline  (Phase II and later)       
Project                     Application                Phase                     

Human healthcare                                                                 
Implanon(R)                 contraceptive implant      market              Europe
                                                       III                 USA   
Org 33628                   contraceptive              II                        
Male contraception          contraceptive              II                        
Puregon(R) Pen(TM)          infertility                market              Europe
                                                       filed               USA   
FSH-CTP                     infertility                II                        
Xyvion(TM)                  osteoporosis               III                       
Andriol(R) Testocaps(TM)    male HRT                   filed               Europe
                                                       II                  USA   
Variza(TM) (gepirone ER)    depression                 filed               USA   
                                                       III                 Europe
Org 5222                    psychosis                  III                       
Org 24448                   psychosis                  II                        
Arixtra(R) new indications  thrombosis                 III/filed                 
SanOrg 34006                thrombosis                 III                       
Org 39141                   rheumatoid arthritis       II                        


Veterinary products            Numerous new products (vaccines and              
                   pharmaceuticals) in various stages of
development       
Active pharmaceuticals         Many products, in general on a contract          
ingredients                    manufacturing basis in the areas of              
                   biotechnology, synthetic peptides and
                            pharmaceuticals steroids, in various stages of
development       

Explanatory remarks                                                             

Phase II                Determination of close and initial evaluation of        
                  efficacy, conducted in a small number of patients.
Phase  III              Large comparative study (compound versus placebo and/or 
                        established treatment) in patients to establish clinical
benefit and safety.             
Filed                   Marketing authorization application (Europe) or new drug
                 application (United States) filed with regulatory
authorities.                    
Market                  The product is approved by regulatory authorities and   
sold in the market.             

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24                                                                              

Description of Coatings' business                                               

Akzo Nobel is a leading producer of paints, finishes, stains, and synthetic     
resins for industrial applications, professional painters, and the do-it-       
yourself sector. Product areas are decorative/architectural paint, car          
refinishes, liquid and powder coatings for industrial use (on wood, plastics    
and metal), marine and yacht coatings, protective coatings, aerospace coatings, 
industrial and consumer adhesives and impregnated paper.                        

                                                        [Enlarge/Download Table]

                                                                                                                              
Major Product Lines    Key Products/Applications                                                    Competitive Position*     

Coatings and related  - Coatings for decoration and protection of architectural structures         - Market leader in Europe  
products              - Industrial coatings such as powder coatings, coatings for wood, metal,     - World leader in selected 
                        coil, and plastics, and non-stick coatings e.g. for construction and         markets                  
                        products for building components, automotive, aircraft, appliances,                                   
                        furniture, mirrors, cookware, and agricultural equipment                                              
                      - Coatings for protection and decoration                                     - World leader             
                        of hulls, interiors, and superstructures for ships and yachts; protective                             
                        coatings and fire retardant products for large plants and offshore                                    
                        installations                                                                                         
                      - Car refinishes, finishes for passenger cars, commercial vehicles, and      - Among top three global   
                        graphic products for decals                                                  suppliers                
                      - Resin impregnated paper for surfacing of wood panels and flooring          - World leader in the      
                                                                                                     noncaptive market        
                      - Adhesives and resins for wood-based board, panels, furniture, floors,      - Leader in selected market
                        and doors.                                                                   niches                   


* See the cautionary statements under introduction on pages 3 and 4.            

Akzo Nobel's global strategy for its coatings business is to extend leading     
positions in clearly defined product areas and specialist niche markets, which  
demand high levels of technical expertise and customer service. Major           
acquisitions in the last few years, combined with organic growth, lifted        
Coatings to the world's number one position. We aim to strengthen this position 
through further organic growth and bolt-on acquisitions. Growth in mature       
markets is expected to remain in line with GDP. Opportunities exist in emerging 
markets and in technology switches often driven by environmental                
considerations. In the fragmented worldwide coatings market, we, as the world   
leader, only represent 8 percent. This market is in a process of consolidation, 
and we believe that our global positions in many fields will enable us to play  
a leading role.                                                                 

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                                                                              25

The Company supports the international initiative of Coatings Care(R)-a program 
for continuous improvement in Safety, Health, and the Environment-and is        
constantly seeking optimal ways to match the principles of eco-efficiency with  
those of high performance.                                                      

Within the field of decorative coatings, Akzo Nobel has a number of top-quality 
professional and do-it-yourself brands, which target national markets (e.g.     
Crown(R) (United Kingdom) and Flexa(R) (the Netherlands)), multinational markets
(e.g. Nordsjoe(R) and Trimetal(R)) and truly international markets (e.g.        
Sikkens(R), Levis(R), and Sadolin(R)). The strength of these brands reflects the
Company's color know-how and customer orientation, as well as the excellent     
performance and high environmental profile of its waterborne and high-solids    
paints.                                                                         

Another prominent area is industrial coatings, especially volatile organic      
compounds ("VOC")-compliant waterborne paints, high solids, and powder          
coatings, which are used to beautify and protect metal, plastic, and wooden     
substrates. Applications range from home appliances to wooden furniture and     
heavy-duty goods vehicles. The Company is the market leader in powder coatings  
and is strong in industrial wood finishes, coil coatings, and plastic coatings. 

The Car Refinishes business includes the car repair and commercial vehicles     
sector. With Sikkens(R), Akzo Nobel Coatings has been a world market leader for 
years, ensuring a fast, efficient, and top-quality result for every type of     
repair. Combined worldwide expertise enables it to develop new technologies and 
products of the highest quality continually. The Company also offers the        
equipment and expertise to go with these products, such as the revolutionary    
Automatchic system, which permits bodyshops to measure and match colors on the  
spot, or the CarInfo II system, which automates administrative processes in the 
bodyshop and produces a wealth of management information that can greatly       
improve bodyshop profitability.                                                 

The Company offers a wide range of VOC-compliant coatings and other products    
qualified by the world's major aircraft manufacturers and used for aircraft     
maintenance.                                                                    

The Company is an international market leader in marine, yacht, and protective  
coatings for heavy-duty applications, such as oil rigs. The Company's tradename 
International(R) is well known all over the world. The Company supplies         
antifouling coatings that keep ships' and yachts' hulls free of barnacles,      
making it easier for them to travel through the water thereby saving fuel costs 
for owners. The Company also provides paints for ships' superstructures, such   
as Interfine(R), which transforms rust stains into colorless deposits.          

Under the tradename Casco(R), the Company produces resin-impregnated papers for 
markets around the world. These are mostly used as decorative surfacing         
materials for kitchen cabinets, laminated floors, and furniture made from       
particleboard. In addition, the Company supplies adhesives and resins to the    
woodworking industry (for furniture, parquet flooring, and laminated beams). It 
also supplies world markets with Expancel(R) microspheres, additives that       
reduce the weight and improve the properties of printing inks, nonwoven         
fabrics, paper, polyester, and underbody coating.                               

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26                                                                              

Description of Chemicals' business                                              

The portfolio of Akzo Nobel Chemicals is a mix of specialty, functional, and    
commodity chemicals based upon leading positions in selected segments of the    
chemical industry.                                                              

                                                        [Enlarge/Download Table]

                                                                                                                                 
Major Product     Key Products/Applications                                                              Competitive Position*   
Lines                                                                                                                            

Specification,   - Pulp bleaching chemicals and chemicals for the manufacture of paper and             - World leader in  pulp   
functional, and    board; specialty resins for adhesives and polymer manufacturing; high performance     bleaching chemicals, and
specialty          separation products for pharmaceuticals                                               strong worldwide        
chemicals                                                                                                position in paper       
                                                                                                         chemicals               
                 - Functional chemicals such as chelates, micronutrients, flame retardants, animal     - Leading or strong       
                   feed additives, PVC additives, and intermediates such as carbon disulfide,            worldwide positions     
                   monochloroacetic acid, methyl amines and thylene amines                                                       
                 - Surfactants and fatty acids used in detergents, cleaning, and personal care, as     - Leading or strong       
                   well as in asphalt poduction and the agro, oil, mining, and textile industries;       worldwide positions     
                   cellulosic specialties as thickeners and additives for coatings, building materials,                          
                   pharmaceutical products, food, mining and oil                                                                 
                 - Polymerization catalysts such as organic peroxides, metal alkyls and custom         - Leading or strong       
                   manufactured Ziegler-Natta systems for the polymer-producing industry; high-purity    worldwide positions     
                   metal organics for the electronic industry, and intermediates for pharmaceutical                              
                   products                                                                                                      
                 - Resins for coatings and printing inks                                               - Leading in selected     
                                                                                                         market niches           
                 - Chlorine and caustic soda for industrial applications                               - Leading positions in    
                                                                                                         Northwest Europe        
                 - Salt for electrolysis, other chemical industries, food applications and consumer    - Leading position  in    
                   use                                                                                   Northwest Europe, and   
                                                                                                         global leader in vacuum 
                                                                                                         salt                    
                 - Catalysts for the oil refining and chemical industries                              - Leading global supplier 
                                                                                                         of the most extensive   
                                                                                                         range of refinery       
                                                                                                         catalysts               

* See the cautionary statements under introduction on pages 3 and 4.            

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                                                                              27

Akzo Nobel is a leader in environmentally compatible pulp bleaching chemicals,  
notably with sodium chlorate worldwide, and is strong in hydrogen peroxide. The 
Company is also a prominent producer of chemicals for the wet-end manufacture   
of paper and board, notably retention and drainage agents, wet-strength resins, 
and sizing agents.                                                              

The Company is the market leader in polymerization catalysts and additives for  
the processing and manufacturing of plastics worldwide. It produces organic     
peroxides for thermosetting and cross-linking applications, UV Cure Chemicals   
for the Graphic Arts, coatings and other industries, and polysulphide chemicals 
for the aerospace, marine and construction industries. The Company's catalysts  
are used in petroleum refining and petrochemical processes, and in              
hydroprocessing and fluid cracking catalysts, Akzo Nobel ranks among the top    
three suppliers of these products in the world.                                 

In surfactants, Akzo Nobel is the market leader in cationic (fatty amine-based) 
surfactants in Europe and a major producer of non-ionic ethylene oxide-based    
surfactants. The Company also makes specialty cellulose-based rheology          
additives for paint and building applications.                                  

Akzo Nobel is strong in functional chemicals. It is the world's principal       
producer of chelates, which deliver micronutrients to plants, and make          
organophosphorus-based fire retardants for plastics and hydraulic fluids. In    
addition, Akzo Nobel is a leading global producer of ethylene amines.           

Akzo Nobel is the largest producer of salt for electrolysis in Northwest        
Europe, and manufactures high-quality evaporated salt with strong consumer      
brands such as JOZO(R). The production and electrolysis of salt both require a  
great deal of energy. By operating in joint ventures with Dutch electricity     
distribution companies, the Company is able to make use of combined heat and    
power (cogeneration). The Company has been active in cogeneration since the     
1930s.                                                                          

Akzo Nobel produces and markets specialty resins for the coatings and printing  
ink industries, including a broad range of alkyds, polyesters, melamines,       
acrylics, and waterborne products. End uses range from automotive coatings to   
industrial coatings for plastics, wood, and metal. The resins are used          
internally and are also sold outside the Company.                               

Other key products include monochloroacetic acid, in which the Company leads    
the worldwide market, as well as carboxymethyl cellulose, which serve as water- 
soluble thickening agents, and choline chloride, a food and feed additive.      

In addition, the Company has established a strong presence, both globally and   
regionally, through joint ventures. Joint ventures include Flexsys, with        
Solutia (number one worldwide in the production of rubber processing            
chemicals).                                                                     

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28                                                                              

GEOGRAPHIC DATA                                                                 

Below, geographic information for Akzo Nobel is presented for net sales,        
operating income, identifiable assets and expenditures for property, plant and  
equipment.                                                                      

                                                        [Enlarge/Download Table]


                                                                                                                    
--------------------------------------------------------------------------------------------------------------------
                      By region of destination          By region of origin            Operating income before      
                              Net sales                     Net sales                    non recurring items*       

Millions of euros    2002       2001       2000      2002      2001      2000      2002         2001         2000   
--------------------------------------------------------------------------------------------------------------------
The Netherlands       816        720        787     2,662     2,533     2,214       191          219          360   
Germany             1,084      1,052      1,064     1,051     1,070     1,134        78           82           83   
Sweden                517        512        538     1,184     1,088     1,268        89           67           79   
United Kingdom        963      1,036      1,052       911       924       966        13           38           55   
Other European                                                                                                      
  countries         3,951      3,964      3,879     3,016     3,266     3,025       654          712          558   
USA and Canada      3,723      3,802      3,596     3,318     3,263     3,198       149          190          237   
Latin America         767        917        944       506       660       704        99          104           91   
Asia                1,513      1,429      1,466     1,064     1,039     1,132       161          113          122   
Other regions         668        678        677       290       267       362        58           46           56   

--------------------------------------------------------------------------------------------------------------------
Total              14,002     14,110     14,003    14,002    14,110    14,003     1,492        1,571        1,641   
====================================================================================================================

* Nonrecurring items relate to income and expenses resulting from normal        
business operations, which, because of their size or nature, are disclosed  
separately to give a better understanding of the underlying result for the  
 period. These include items such as restructuring and impairment charges, and
significant gains and losses on the disposal of businesses, not meeting the 
requirements for extraordinary items.                                       

                                                        [Enlarge/Download Table]


                                                                                                                   
-------------------------------------------------------------------------------------------------------------------
                                                                   Expenditures for property,                      
                             Identifiable assets**                     plant and equipment                         
Millions of euros              2002         2001          2000         2002       2001     2000                    
-------------------------------------------------------------------------------------------------------------------
The Netherlands               2,618        2,595         2,860          197        235      156                    
Germany                         819          931         1,599           36         52       51                    
Sweden                          798          831           762           36         71       74                    
United Kingdom                1,134        1,365         1,198           25         36       56                    
Other European countries      2,210        1,842         2,017          136        104       96                    
USA and Canada                2,772        3,090         2,324          177        220      193                    
Latin America                   424          589           592           31         33       35                    
Asia                            838          859           865           41         54       35                    
Other regions                   306          345           308           10         17       29                    
-------------------------------------------------------------------------------------------------------------------
                             11,919       12,447        12,525          689        822      725                    
Eliminations and cash and                                                                                          
  cash equivalents              379          (97)         (491)                                                    
Nonconsolidated                                                                                                    
  Companies                     491          575           673                                                     
-------------------------------------------------------------------------------------------------------------------
Total                        12,789       12,925        12,707          689        822      725                    
===================================================================================================================

**Prior years have been restated for changes in accounting principles.          
Reference is made to "Item 5. Operating and Financial Review and Prospects -
Changes in Accounting Principles".                                          

See Item 5 "Operating and Financial Review and Prospects" for a discussion on   
factors affecting comparability between periods.                                

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                                                                              29

INSURANCE                                                                       

Akzo Nobel's insurance policy is part of a general risk management philosophy   
emphasizing the importance of creation of risk awareness throughout the entire  
organization and promotion of loss control efforts. Risk finance, normally in   
the form of insurance, is seen as a last resort to provide financial coverage   
for mainly catastrophe-like events. Events of frequent nature with limited      
financial effect are self-insured with the use of 100-percent-owned captive     
insurance companies.                                                            

The limits of insurance are based on loss scenarios as well as normal practice  
in Akzo Nobel's type of industry. For property damage/ business interruption as 
well as for general product liability, the current exposure retained in the     
captive insurance arrangements is limited to EUR 11 million per event with an   
aggregate retention for the whole of EUR 150 million over a five-year period.   
When losses exceed these retentions, external insurers will provide coverage    
from a deductible level of EUR 0.5 million.                                     

The maximum amount of loss covered by external insurers is EUR 565 million for  
property damage/ business interruption and EUR 656 million for general product  
liability for the 5-year-period ending December 31, 2003.                       

HUMAN RESOURCES                                                                 

Akzo Nobel's decentralized two-layer organizational structure supports its      
ambitions and offers the Company's employees broad scope and responsibility in  
various disciplines, permitting them to develop their talents at an early stage 
of their careers. Akzo Nobel provides opportunities and resources; employees    
can use these to develop their skills and to be ready for change even before it 
becomes a necessity.                                                            

RESEARCH AND DEVELOPMENT                                                        

In 2002, R&D expenditures amounted to EUR 912 million, up 8 percent from 2001.  
The main driver continued to be Pharma, which accounted for 66 percent of Akzo  
Nobel's total R&D expenditures. Total R&D staff increased from 6,900 at year-   
end 2001, to 7,200 at year-end 2002.                                            

In all of our activities we want to be in the forefront through ambitious R&D,  
exploring and innovating and always striving for optimization, sustainability,  
and profitable growth.                                                          

                                                        [Enlarge/Download Table]

                                                                                                                              
----------------------------------------------------------------------------------------------------------------------------  
              EUR million          % of sales                                                                                 
            2002       2001      2002      2001                                                                               
----------------------------------------------------------------------------------------------------------------------------  
Pharma       600        535        15        13         In 2002, R&D expenditures were up 8% from the previous year, primarily
Coatings     166        160         3         3         reflecting Pharma's stepped up efforts.                               
Chemicals    135        142         3         3                                                                               
----------------------------------------------------------------------------------------------------------------------------  

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30                                                                              

R&D SPEARHEADS                                                                  

Pharma                                                                          
Discovering innovative therapies                                                

In the last decade, the rapid pace of technological progress and scientific     
discovery has brought about a radical revolution in industrial drug discovery.  
With the human genomic map virtually completed, the expectation is that         
diseases and their genetic causes will be better understood. This may lead to   
novel drugs affecting target receptors with hitherto unknown mechanisms of      
action. High-throughput screening of chemical structures in many recombinant    
receptor assays has further increased the possibilities. Worldwide, innovative  
pharmaceutical R&D is now facing the next challenge of finding connections      
between the new, unknown targets and clinical practice. To that end, industrial 
and academic scientists are teaming up to design new experimental methods in    
clinical and animal pharmacology.                                               

Organon R&D, too, is endeavoring to fully apply these new technological         
developments and discover innovative therapies in its areas of interest:        
contraception, infertility, osteoporosis, psychiatry, muscle relaxants, pain    
management, and cardiovascular and immunological disorders. It is essential to  
identify innovative drug candidates and keep Organon's drug pipeline well       
filled in alliance with specialized companies and academic groups.              

In a market where success is determined by broad and high quality product       
ranges for various animal species, R&D is of utmost importance to Intervet. R&D 
is conducted in two departments: one for vaccines and one for pharmaceuticals.  
High-tech biotechnology is applied to develop state-of-the-art antigens for     
vaccination. To further improve vaccines, the basic mechanisms of immune        
stimulation are being explored. In the pharmaceuticals department, Intervet not 
only develops existing human drugs for use in animals, but also new drugs for   
parasitic and bacterial diseases exclusively for animals. Advanced techniques   
such as genomics, proteomics, and bioinformatics are fully integrated in        
Intervet's pharmaceutical R&D. R&D is further bolstered by teaming up with      
government institutes and universities all over the world.                      

Process optimization and upkeep of chemical and biochemical synthesis routes,   
biochemical extractions, and production of recombinant biologicals constitute   
the main efforts of Diosynth R&D. Additionally, new processes are being         
explored to secure the supply of bulk strategic starting materials.             

In 2002, a new business entity, Nobilon, was set up to exploit the synergy      
potential of biotech expertise available within the Pharma business units.      
Currently, business opportunities are being evaluated which may lead to an      
entry into the human vaccine field.                                             

Coatings                                                                        
Environmental adaptation and improved performance                               

The two main drivers for Coatings R&D are environmental adaptation and improved 
performance, including the ability to provide new beautiful colors, outstanding 
durability, and faster and easier application.                                  
During 2002, the R&D efforts yielded several new frontline proprietary          
technologies related to:                                                        
- the use of daylight in the paint curing process;                              
- antifouling coatings based on new chemistry;                                  
- curing catalysts that are latent in the paint but are activated by moisture   
or light after paint application;                                           
- new high performance polymers for water-based, solvent-free, and high-solids  
systems;                                                                    
- improved thin layer powder technology; and                                    
- faster and more efficient pigment evaluation, which is crucial for color      
matching and recipe evaluation.                                             

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                                                                              31

The projects are undertaken by the individual business units in different       
geographic locations. Several of the projects involve customer, supplier, or    
university cooperation. The resulting technology base is made available to the  
entire Coatings group.                                                          

Chemicals                                                                       
Continuous upgrading of core technologies                                       

For each business unit within Chemicals the preservation and continuous         
upgrading of its core technologies are essential to secure competitive market   
advantages. This requires the approach to be both customer and application      
oriented and implies an appropriate balance in its technology program between   
short-term and long-term innovation goals. An important driver for the          
technology program is sustainability of both current and future operations and  
products.                                                                       

State-of-the-art R&D resources, embedded in the individual business units, are  
instrumental in executing the technology program. R&D units are established in  
all major markets.                                                              

In order to access, explore, and exploit the latest technologies originating    
from the scientific world, business units also operate in shared development    
platforms, often including university partners. These efforts are assisted by   
Chemicals group centers of excellence. Typical issues studied in these          
platforms are:                                                                  
- reduction of energy and raw material consumption by applying front end        
separation technology;                                                      
- waste and energy reduction using modern solid catalysts;                      
- closed loop production through process intensification;                       
- low energy routes to high quality emulsions;                                  
- more stable and safer processes by application of control room simulation;    
- prospects of nanochemistry, and;                                              
- shortening time to market and/or time to production by high throughput        
experimentation.                                                            

ENGINEERING                                                                     

Akzo Nobel Engineering (AE) is globally active in improving the competitive     
position of its business partners by contributing added value through integral  
engineering solutions. AE is involved in major capital investment projects,     
particularly at Chemicals and Pharma, and achieves a substantial part of its    
sales outside of Akzo Nobel by supplying valuable expertise to steady business  
partners, mainly in the fields of chemicals, paper and fibers. AE delivers a    
sound technological and financial contribution to Akzo Nobel.                   

HEALTH, SAFETY AND ENVIRONMENT ("HSE")                                          

Concern for health, safety, and the environment is an integral part of Akzo     
Nobel's business policy. Akzo Nobel actively supports the guiding principles of 
the Business Charter for Sustainable Development of the International Chamber   
of Commerce, the Responsible Care(R) program of the chemical industry, and the  
Coatings Care(R) program of the paint and printing ink industry. At the end of  
the year a new Corporate Policy Statement on HSE was issued, now including a    
paragraph on our emphasis on Product Stewardship.                               

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32                                                                              

The Company has designated five parameters which have been translated into      
specific targets for the operational plans.                                     

                                                                [Download Table]


                                                                                
--------------------------------------------------------------------------------
                                            2001         2002      2005 Targets 
--------------------------------------------------------------------------------
Frequency Rate Lost Time injuries (LTI)                                         
per 1 million hours worked                   3.6          3.0               2.5 
Total Illness Absence Rate (TIAR) in %       2.7          2.6               3.5 
Chemical Oxygen Demand of discharge                                             
to surface water, in tons                  4,000        3,600             3,000 
Volatile Organic Compounds (VOC)                                                
emission to air, in tons                   6,300        5,700             4,000 
Nonreusable waste, in tons               126,000       97,000           115,000 
================================================================================

Coatings and Pharma have improved their safety performance, whereas Chemicals   
remained stable at its relatively good level. The Frequency Rate for Akzo Nobel 
as a whole therefore has dropped compared to the previous year, although it is  
still above the target of 2.5. This improvement is, regrettably, overshadowed   
by a total of five fatalities in work-related circumstances.                    

The Total Illness Absence Rate (TIAR) is already below the target set for 2005. 
We now focus our attention on improvement for those sites where the TIAR is     
still above 3.5.                                                                

Despite several acquisitions in 2002, all the values for the environmental      
parameters have dropped compared to last year; we have confidence that we will  
meet the 2005 targets.                                                          

Our latest Corporate Directive requiring implementation of a Product            
Stewardship Management System by 2003 has already initiated many projects.      
Examples of the approach some Akzo Nobel business units have adopted can be     
found on our internet site. Pharma has taken an advanced approach toward        
Product Stewardship by concentrating on Issue Management, resulting in action   
plans that have been launched early in 2003 at all three Pharma business units. 

SECURITY                                                                        

Akzo Nobel pays continuous attention to security with the main objective to     
provide a secure environment for employees, contractors, temporary staff,       
visitors, and neighbors. As an example of these efforts, Akzo Nobel's Chemicals 
operations in the United States play an active role in the development of       
guidelines for the Chemical Industry aimed at improved security on sites and    
during transportation. These guidelines form an integral part of the            
Responsible Care(R) program, which Akzo Nobel endorses.                         

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                                                                              33

BUSINESS REVIEW AND DEVELOPMENTS AT BUSINESS UNITS                              

For financial details on acquisitions or divestments, reference is made to Note 
2 of the Notes to the Consolidated Financial Statements.                        

PHARMA                                                                          

Business review                                                                 

Pharma's three business units each focus on a different segment of the          
pharmaceutical industry. Organon is our human pharmaceutical business. Diosynth 
concentrates on the manufacturing of active pharmaceutical ingredients for      
Organon and for third parties as well. Intervet specializes in veterinary drugs 
and vaccines. In 2002, Nobilon was established as a new activity into the areas 
of human vaccines and biopharmaceuticals.                                       

A number of factors in the pharmaceutical business environment made 2002 a very 
challenging year. Competition from companies that produce generic drugs became  
much more aggressive both in the courts and in the marketplace, while the       
hurdles to obtaining new product licenses increased in Europe, the United       
States, and Japan. The economic situation in Latin America and elsewhere        
contributed to the turbulent and complex business situation.                    

Akzo Nobel Pharma was not immune to these difficulties. In late December 2002 an
unfavorable court ruling in the Remeron(R) case paved the way for our           
competitors to produce and distribute in the United States generic versions of  
this important Organon product. In Japan, our product licenses for Remeron(R)   
and Xyvion(TM) were delayed by the regulatory authorities. In the United States,
additional data requests by the FDA regarding Variza(TM) (gepirone ER) delayed  
its registration as well. Aside from these developments, Intervet and Organon   
were also adversely affected by the depressed economic situation in Latin       
America. The weaker U.S. dollar had a EUR 61 million negative influence on      
Pharma sales as compared to 2001.                                               

Despite these adverse conditions and higher pension costs, we were able to      
maintain Pharma's operating income at a level of EUR 768 million (2001: EUR 831 
million). We remain confident of our capabilities and business plans. In 2002,  
we significantly increased R&D spending and invested in the launch of two new   
products, Arixtra(R) and NuvaRing(R). Arixtra(R) is a novel pentasaccharide drug
used to prevent thrombosis following certain surgical procedures such as        
orthopedic operations. The product has been developed and is marketed in        
conjunction with our partner Sanofi-Synthelabo. NuvaRing(R) is an intravaginal  
ring which releases a minimum amount of drug to prevent conception. We believe  
that its unique features make it an attractive alternative to oral              
contraceptives or contraceptive patches.                                        

Pharma's capital expenditures were nearly twice the amount of depreciation.     
These expenditures included major investments in GMP (Good Manufacturing        
Practice) production facilities, laboratory improvements, and the completion of 
the new Organon headquarters.                                                   

For several years now the Pharma group has been divesting noncore businesses in 
order to focus on ethical pharmaceuticals. The last step in this process was the
sale of Rosemont, a company in the United Kingdom specializing in generic,      
liquid, orally taken drugs.                                                     

The unfavorable ruling in the Remeron(R) patent case is likely to decrease sales
of the product in the United States. The EU patent is secure until 2004. Steps  
were taken in 2002 to mitigate the impact of this patent expiration on operating
income. Further cost-saving measures are planned for 2003 to limit the financial
impact.                                                                         

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34                                                                              

Recent investments in downstream processing capacity at our Oss, Netherlands    
site provided Diosynth with a very competitive base to grow within the a        
commercially ttractive biotechnology production segment. Diosynth continues to  
attract major pharmaceutical companies as well as biotech start-ups as customers
for its process development and active pharmaceutical ingredients (API)         
production businesses.                                                          

During 2002, Intervet faced the challenge of the downturn of the economy in     
Latin America, which is an important market for cattle and poultry production.  
Compared to 2001, sales in the United States were flat in dollar terms, with    
volume up slightly. A one-time inventory write-off also adversely impacted      
operating income. In 2003 a new vaccine production facility near Kansas City is 
expected to be opened. In 2002, a new virology R&D building was opened at       
Boxmeer, the Netherlands, and the Pharmaceutical R&D facility in Schwabenheim,  
Germany, became fully operational. We believe that Intervet is now in a good    
position to continue its course of sustained growth in the veterinary market.   

In 2002, we also decided to enter the human vaccine business because it is a    
growth market and because we can benefit from our experience in vaccines and    
biotechnology in general. Based on doses, Intervet is the largest vaccine       
producer in the world and in terms of sales it is number five. The start-up     
business, Nobilon, will be housed in a new vaccine production facility in       
Boxmeer, which is scheduled to be operational in mid-2003. Nobilon will focus   
initially on  human vaccines. Sales by Nobilon from its own products are not    
anticipated until after 2007, however. In the interim, the facility can produce 
certain vaccines for third parties.                                             

Developments in the Pharma business units                                       

Organon - Prescription drugs                                                    
Sales 2002: EUR 2,593 million; 2001: EUR 2,504 million                          

Despite a turbulent 2002, Organon was able to maintain 5 percent ethical drug   
sales volume growth. Higher selling and distribution expenses, increased        
spending on key development projects, and substantial currency translation      
effects, however, resulted in an operating income that was slightly below the   
previous year's level.                                                          

We achieved sales growth in both Europe and the United States, the two largest  
pharmaceutical markets in the world. The weakening of the U.S. dollar and other 
currencies, increased generic competition for our Mircette(R) oral              
contraceptive, and the launch costs associated with our NuvaRing(R)             
contraceptive vaginal ring and Arixtra(R) antithrombotic slowed sales growth.   

Growth momentum was preserved in 2002 through sustained investment in our       
existing products, continued support of our strong R&D pipeline, precise cost   
containment efforts, and an ongoing commitment to strategic alliances. These    
actions contributed to Organon's transformation into a more agile and responsive
global organization. Organon achieved several significant milestones in 2002,   
including record sales of its antidepressants Remeron(R) and Remeron SolTab(R), 
the introduction in the United Sates of NuvaRing(R) and Arixtra(R) and the      
relocation of Organon's International Headquarters from Oss, the Netherlands, to
Roseland, New Jersey, in September 2002. On a more negative note, we were       
confronted at the end of 2002 with the unfavorable court ruling on Remeron(R) in
the United States.                                                              

To help achieve Organon's growth objectives, we took specific measures designed 
to improve both operation efficiency and financial performance. We announced the
restructuring and reduction of the U.S. field sales force, while in Japan staff 
numbers will also be reduced, primarily through early retirement.               

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The pharmaceutical industry is facing challenges from competition by producers  
of generic drugs, while at the same time demands for additional drug efficacy   
and safety data are being made by various public and government bodies. To help 
meet these challenges a more global approach to the business is required.       

Organon is well on its way toward becoming a truly global business. The         
relocation of our headquarters to the United States is more than a symbolic     
step. It places us at the center of the most dynamic, competitive, and R&D      
intensive environment in the world. Organon is taking advantage of its          
international strengths in its ongoing search for new development and marketing 
alliances.                                                                      

Sales development of the main product groups was as follows:                    
- Central Nervous System           + 11%       to EUR 800 million               
- Contraception                     - 3%       to EUR 521 million               
- Infertility                       + 5%       to EUR 402 million               
- Hormone Replacement Therapy       + 5%       to EUR 330 million               
- Hospital pharmaceuticals          + 3%       to EUR 282 million               

The top four product groups accounted for EUR 2,053 million in sales in 2002 and
represented 79 percent of total sales. Sales of Remeron(R) (antidepressant) were
at an all-time high, up 14 percent to EUR 717 million. Sales of                 
Marvelon(R)/Mercilon(R)/Mircette(R) (oral contraceptives) declined 12 percent to
EUR 380 million. Puregon(R)/Follistim(R) (infertility) sales increased 8 percent
to EUR 356 million. Sales of Livial(R) (hormone replacement) gained 12 percent  
to EUR 208 million.                                                             

Headcount increased by 500 to 13,300 in 2002.                                   

February 2002 saw the U.S. launch of the antithrombotic Arixtra(R) by Organon   
and our joint venture partner Sanofi-Synthelabo. Initial sales took off slowly  
due to existing long-term contracts for competing drugs and the inherent inertia
of the hospital formulary system. Arixtra(R) is currently approved for the      
prevention of thrombosis following hip and joint surgery. Planned label         
expansions are expected to drive sales growth considerably.                     

In July 2002, we launched the contraceptive ring NuvaRing(R) in the U.S. market.
Corresponding launches are now underway in several European countries. Organon's
other novel form of contraception, Implanon(R), a single rod contraceptive      
implant, is now being marketed in 15 European countries, Asia, Latin America,   
and Australia.                                                                  

The pharmaceutical industry grows and remains vital through successful research 
and development programs. At Organon we are committed to improvements in the R&D
process that ensure more effective utilization of our R&D assets and people. We 
seek to increase productivity while maintaining the required balance between    
efficiency and quality needed to meet our R&D objectives.                       

At Organon we understand that R&D productivity is not directly proportional to  
R&D budget or staff size. Essential factors to R&D success, like creativity and 
the desire to succeed, are independent of size. We believe that our focus,      
process efficiency, and talent management are relatively more productive,       
compared to many of our larger competitors. This gives us confidence that we    
will be able to maintain an attractive R&D pipeline and continue Organon's path 
toward increasing growth over the long run.                                     

A new antipsychotic drug, Org 5222 has entered Phase III of clinical            
development. It has a promising pharmacological profile compared to drugs       
currently prescribed for that condition.                                        

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36                                                                              

Product formulations for a new male contraceptive concept are being evaluated in
Phase IIb trials as part of a joint development with Schering AG (Germany). A   
new estrogen-free female contraceptive is in Phase II testing as well. Organon's
CNS pipeline (antidepressants, antipsychotics) includes several Phase II        
projects. All in all, we believe that our pipeline is promising, while we       
continue to push for greater R&D productivity.                                  

For Arixtra(R), studies are in progress to expand the number of thrombotic      
indications for which it is approved, for example, treatment of venous and      
arterial thrombosis. Research is also in progress on SanOrg 34006, a new        
compound in our synthetic antithrombotic line to prevent and treat long-term    
venous and arterial thrombosis.                                                 

At Organon we realize that we cannot rest on past performance success if we are 
to meet the challenges ahead, but we can continue to build upon the strengths   
that brought us to where we are today. We will put resources to work defending  
and growing our market share in the female health market, including             
contraception, infertility treatment, and hormone replacement therapy, and      
maintaining our market share in depression and anesthesiology. We also plan to  
continue our investments in the atherothrombosis, psychosis, and osteoporosis   
areas, while working to expand our competencies in the areas of rheumatoid      
arthritis and pain management.                                                  

We are taking operational steps that we believe will make us a more customer    
friendly and focused company. In this context we moved from a six-region to a   
four-region sales organization and plan to develop functional marketing support 
at both the clinical and commercial development levels. Organon will continue   
to focus on the basics in business, managing all business processes, including  
manufacturing and inventory, in an effort to ensure the best possible outcome.  

Intervet - Veterinary products                                                  
Sales 2002: EUR 1,081 million; 2001: EUR 1,096 million                          

Every day, throughout the world, hundreds of thousands of animals are treated   
successfully with Intervet veterinary products. Intervet takes a diversified    
approach to mirror the highly fragmented veterinary market, focus research on   
emerging regional needs, and properly address local markets.                    

Key activities in 2002 included continued business consolidation and            
streamlining the company structure. Intervet's excellent global coverage and    
its broad range of products for farm and companion animals put the company in a 
strong position to weather the stagnation in the veterinary market and partly   
compensate for the challenging market conditions in some parts of the world.    
Nevertheless, operating income was lower, also due to some inventory write-off. 

Intervet's efforts to optimize value creation are driven by innovation and      
application of state-of-the-art technology. Annual investment in R&D exceeds 10 
percent of sales, and more than 15 percent of Intervet's total workforce is     
engaged in R&D activities. In 2002, a new project management system for R&D was 
implemented, creating an information interface for all functions involved in    
the development of new products.                                                

In April 2002, after a 15-month construction period, modern virology research   
facilities were opened at the Boxmeer site in the Netherlands. Intervet's       
strategy focuses on the development of proprietary antiparasitic drugs and new  
antiparasitic vaccines. The modern pharmaceuticals research facility in         
Schwabenheim, Germany, is now completely staffed and fully operational for      
further expansion of R&D activities. The transfer of the research activities    
from Vienna, Austria, to Schwabenheim was completed in 2002.                    

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With its newly developed foot-and-mouth disease (FMD) diagnostic tool, Intervet 
permits a new and comprehensive approach to combating FMD in Europe. In         
addition, the World Organization for Animal Health (OIE) has adopted a number   
of important changes to its provisions on FMD, especially in relation to        
vaccination.                                                                    

Intervet must respond quickly to a fast-changing, highly competitive            
environment. For marketing purposes, extensive knowledge management databases   
have been launched to connect those involved in the global marketing process.   

The global rollout of the customer-oriented ordering and forecasting system     
introduced in 2001 was successfully finalized in June 2002. A major logistics   
and manufacturing initiative was started to design and implement the next       
generation of business system platforms within Intervet's larger subsidiaries.  

The construction of a state-of-the-art facility at the De Soto, Kansas, site    
was completed on schedule in the fall of 2002. Regional R&D, distribution and   
administrative activities have already begun at this Mid-West center.           
Production is expected to come on stream by mid-2003 after finalization of the  
validation phase. The addition of a molecular laboratory in the United States   
in 2003 will enable researchers to take novel approaches in the development of  
new generations of existing products and develop products for new diseases for  
which conventional technology is inadequate.                                    

Diosynth - Complex active pharmaceutical ingredients                            
Sales 2002: EUR 529 million; 2001: EUR 488 million                              

Although the decline of the world economy also impacted the pharmaceutical      
industry, Diosynth again registered a strong performance, both in sales and     
operating income. Compared to the previous year, sales showed an increase of 8  
percent, while operating income was also clearly ahead. It should be noted that 
a direct comparison of results for Diosynth between 2002 and 2001 is impacted   
by Diosynth's focus on strategic shift, as is reflected by the divestment of    
Rosemont Denver (Colorado) in August 2001, the divestment of Rosemont Leeds     
(United Kingdom) in September 2002, and the acquisition of the former U.S.-     
based Covance Biotechnology Services Inc. (now called Diosynth RTP, Inc.) in    
June 2001. Excluding these divestments and acquisitions, Diosynth still shows   
satisfactory sales and earnings gains, making 2002 a very good year for the     
business unit.                                                                  

In 2002, we spent much energy on the integration of Diosynth RTP and the        
corresponding biotech activities in Oss, the Netherlands. As far as business    
activities are concerned, integration has now been completed. Technical and     
market integration should be completed in 2003, once the new Upstream           
Processing plant (Diosource, Oss) has become operational.                       

For our chemical activities we are looking into possibilities of extending our  
production, as capacity constraints are limiting further growth for this        
strongly performing product group.                                              

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COATINGS                                                                        

Business review                                                                 

The aim of our Coatings group remains to grow and strengthen our world leading  
positions through a combination of organic growth and selective bolt-on         
acquisitions. We will continue to play a leading role in the consolidation of   
the still fragmented world coatings market in which we, as world leader, have   
only 8 percent market share.                                                    

Since growth in the (mature) industrialized markets is limited to around GDP,   
most of our efforts are geared toward emerging markets, especially Asia. In     
2002, we increased ownership in our marine coatings joint venture in Korea to   
60 percent, commissioned a powder coatings facility in Vietnam and a coil       
coatings facility in Suzhou, China, inaugurated the newly built Car Refinishes  
Research center in Bangalore, India, and formed a 65 percent-owned decorative   
coatings joint venture in Indonesia. Furthermore, we are building another two   
grassroots wood coatings sites in China and are investing in a nonstick         
coatings facility in Dongguan City. During the year, we opened our first        
decorative coatings factory in Moscow as well as a new building adhesives       
factory in Germany.                                                             

We again stepped up our R&D efforts: expenditures rose 4 percent to EUR 166     
million, reaching for the first time 3.0 percent of sales. The 2002 Akzo Nobel  
Coatings Award for the most promising technical innovation went to Car          
Refinishes for a new UV-A light assisted curing technology in two-component     
paint products. We started preparing for the construction of a new Car          
Refinishes Research Center in Pontiac, Michigan, and an extensive renovation of 
our worldwide Marine and Yacht research and product development facilities in   
Felling, United Kingdom.                                                        

During the year, Crazy Car Colours(R)-a unique, patented temporary finish-was   
introduced. This finish can be removed easily with warm water without damaging  
the original surface. The Decorative Coatings "Disney* Home Color" concept,     
using Disney's famous cartoon figures as a basis for an innovative color        
approach in designing children's rooms, was awarded during the DIYTEC 2002 Fair 
in Cologne, Germany.                                                            

Car Refinishes created a new Accident Management Services (AMS) unit, aimed at  
providing comprehensive accident management services to insurance companies,    
bodyshops, and fleet owners, facilitating damage settlement within the total    
repair chain.                                                                   

In 2002, we continued our selective bolt-on acquisition strategy by acquiring   
the Awlgrip(R) marine and aerospace coatings businesses, the high performance   
specialty paint businesses of Plascon, United Kingdom, car paints distributors  
in France and Finland, several decorative paint distributors in Germany,        
Switzerland, and the Benelux, and by increasing our shareholding in the Greek   
decorative coatings joint venture Vivechrom to 76 percent. We also strengthened 
our position in the Korean marine coatings market by acquiring the Chilseo      
manufacturing site and at the same time increasing our shareholding in the      
marine coatings joint venture IPK to 60 percent. By acquiring the Ferro Powder  
Coatings activities in the Americas we were able to resolve a major strategic   
gap. Moreover, we fortified our global leadership position in powder coatings   
with the Ferro businesses in Korea and China, the formation of a 50 percent     
joint venture in Mexico, and the expansion of our powder coatings activities in 
Italy.                                                                          

Sales of EUR 5.5 billion were basically flat compared to 2001. Despite          
difficult economic circumstances and increased pension costs in 2002, we have   
been able to realize a quantum leap in performance through tight cost control   
on all fronts, while some of the effects of the far-reaching restructuring      
programs initiated by mid-2001 and accelerated during 2002 materialized.        

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Coatings' operating income before nonrecurring items of EUR 465 million was up  
9 percent from 2001. Return on sales increased to 8.4 percent, against 7.6      
percent in 2001. Return on investment, met the 20 percent threshold; 20.0       
percent compared to 18.1 percent in 2001. Operating working capital (on a       
quarterly moving average basis) dropped from 24.8 percent to 23.0 percent of    
sales, while capital expenditures of EUR 131 million were only 87 percent of    
depreciation.                                                                   

Developments in the Coatings business units                                     

Decorative Coatings                                                             
Sales 2002: EUR 1,915 million; 2001: EUR 1,875* million                         

Decorative Coatings Europe and Decorative Coatings International serve the      
professional and do-it-yourself markets. Major brands include Sikkens(R),       
Sadolin(R), Crown(R), Astral(R), Marshall(R), Trimetal(R), Nordsjoe(R),         
Levis(R), Herbol(R), Vivechrom(R), and Flexa(R). The leading building adhesive  
brand is Schoenox(R).                                                           

* Adjusted for regrouping of activities                                         

Decorative Coatings Europe                                                      

Operating income for Decorative Coatings Europe in 2002 was better than in the  
previous year. On a comparable basis, income improved considerably on the       
previous year, despite a mixed season for outdoor painting. This favorable      
performance was primarily attributable to our continued efforts to improve the  
quality of the business, supported by a beneficial price development for        
several key raw materials during most of the year. By implementing a number of  
restructuring projects, we reduced operating costs and invested capital. During 
the year we acquired Plascon in the United Kingdom and Ireland as well as a     
number of paint merchant outlets in Germany.                                    

Retail and Trade showed strong progress, and Specialties maintained good        
profitability in the face of a slowdown in the construction of new buildings in 
a number of countries.                                                          

We assigned high priority to adding value for our customers and transferring    
best practices. Our R&D strongly focuses on creating innovative products and    
improving their environmental performance. We set up test markets for a new     
generation of waterborne products and systems and devoted R&D efforts to a      
further reduction of VOC (volatile organic compounds) emissions. The first      
pilot of the future new tinting machine for points of sale was set up in        
preparation for a general rollout in the years to come. The Retail organization 
won the Innovation Award at the DIYTEC 2002 Trade Show in Cologne, Germany, for 
the Disney(R) Home Color product range. This range will be introduced in        
several European countries. With the acquisition of Plascon in the United       
Kingdom and Ireland we gained an attractive portfolio in specialty paints with  
further add-on potential for other European markets through our existing        
channels.                                                                       

We also bolstered our strong European brand positions by making additional      
marketing efforts in a number of countries including Spain, where a TV          
commercial starring former soccer player Johan Cruijff and his son Jordi        
supported a relaunch of our Bruguer(R) brand.                                   

Decorative Coatings International                                               

Despite the difficult economic climate in countries like Turkey and Argentina,  
we registered satisfactory gains in operating income. Our niche concepts in the 
United States and in Argentina (wood care products)                             

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40                                                                              

proved successful, bringing further growth in sales and earnings compared to    
the previous year. On a more negative note, good progress and performance in    
Brazil were offset by the devaluation of the real. We achieved double-digit     
volume growth in our growth markets in Asia (China, Vietnam, and Indonesia      
where a new Jakarta-based joint venture was established) as well as in Russia   
and Ukraine. Our new factory just outside Moscow, which opened in June 2002,    
successfully produced its first batches of paint. Our facilities in Hungary and 
Poland, where we are the number two paint producer, will serve as platforms for 
further expansion in Eastern Europe. We achieved volume and earnings gains for  
our European building adhesives. A new production plant for powder-based tile   
adhesives and leveling compounds was opened in Germany during the year. In a    
move to reduce costs and concentrate resources, we moved the laboratories for   
liquid adhesives from Sweden to Germany.                                        

Our North African operations in Morocco and Tunisia continue to deliver good    
returns. We set up one head office in Casablanca and rationalized production    
and warehousing activities. Rationalization efforts in Morocco will be          
finalized in 2003.                                                              

The Paccess supply chain project, which offers huge potential savings through   
more efficient electronic handling, has been implemented in a number of         
operations.                                                                     

We are continuing our product stewardship efforts, which mainly focus on lead,  
chromates and APEO (alkylphenol polyethoxylate).                                

Industrial activities                                                           
Sales 2002 EUR 1,718 million; 2001: EUR 1,667* million                          

In 2002, Akzo Nobel's industrial coatings activities included three global      
business units: Industrial Coatings, Industrial Finishes, and Powder Coatings.  
In order to achieve the best possible synergies it was decided to dissolve      
Industrial Coatings with effect from January 1, 2003, and to transfer the       
activities to the other Coatings business units.                                

* Adjusted for regrouping of activities                                         

Industrial Coatings                                                             

2002 was another year with weak market conditions in the United States and      
Europe, while business activities in Asia Pacific increased considerably.       
Operating income ended below the 2001 level.                                    

Transportation Coatings continued implementing its restructuring program in     
Europe. In line with this program, production is being concentrated in a        
limited number of sites. Product development efforts led to substantial         
improvements in product ranges, and a license agreement for ED (Electro         
Deposition) primers was concluded with Japanese Kansai Paints. The start-up of  
the activities in India showed satisfactory progress.                           

Specialty Coatings drastically restructured its product portfolio, focusing on  
Non-Stick Coatings, Specialty Plastics, and Mirror and Building Components.     
During the year, we divested General Industrial activities in the United        
States, France, Scandinavia, and Poland. We also announced plans to establish a 
Non-Stick production unit in Dongguan City, China, which will be ready by the   
end of March 2003.                                                              

Aerospace Coatings benefited from the acquisition of the aerospace activities   
of U.S. Paints. However, performance suffered from the downturn in overall      
aerospace activities.                                                           

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We continued our R&D efforts on the development of eco-efficient products,      
placing a continued strong emphasis on reduction of VOC emissions.              

Industrial Finishes                                                             

As a result of the steady pull from the North American market and buoyant       
growth in Asia, worldwide demand for wood and coil coatings strengthened in     
2002. In addition, we were able to capitalize on growth opportunities due to    
the cost containment efforts and the strategic decisions taken in 2001.         
Accordingly, the North American business gained market share as it proved to    
have a leading edge on competition. Also, prior investments in frontier         
markets, supported by local sourcing, contributed significantly to our results. 
Developments in Europe presented a different challenge. Our European-based      
businesses, faced with a dull market and overcapacity, focused on structurally  
reducing costs, maintaining market share, and preparing for growth in Eastern   
Europe. These factors resulted in a substantial improvement in both organic     
growth and operating income.                                                    

In order to be both environmentally proactive and enhance the value of our      
products to our customers, we further refined our portfolio of R&D projects. In 
addition, we continued to leverage core technologies in developing markets at   
an accelerated pace.                                                            

During the year, we bolstered our position in the rapidly growing Asian market  
by constructing and commissioning a coil coatings facility at the Company's     
production site in Suzhou, China.                                               

Powder Coatings                                                                 

2002 saw a continued weakening of the markets in Europe and the Americas, while 
markets in Asia continued to grow, particularly China. Operating income was     
ahead of the 2001 level, with an improving trend in the second half of 2002 as  
the benefits of cost cutting began to emerge.                                   

In September, we acquired Ferro's powder coatings businesses in the Americas    
and Asia. This gives us a credible number three position in a U.S. market which 
still has room to mature as customers reinvest in facilities and move from      
liquid to powder as a coatings material. In October, we also acquired a 50      
percent share in a growing powder coatings business in Mexico.                  

The acquisitions in Asia reinforce our number one position in the fastest       
growing powder markets in the world. In addition, we opened our new plant in    
Vietnam on time, and we are satisfied with our progress there.                  

Our sales of Interpon(R) products based upon our unique patented technologies   
continued to grow, especially in Asia. The acquisition of the Ferro business    
gave us further new technology, particularly in acrylic powder coatings. Our    
growing global presence will allow international customers to purchase our full 
range of products wherever they decide to invest in manufacturing facilities.   

After two years of recession in the worldwide powder coatings market we are in  
a stronger position than before to benefit from any upturn in market            
conditions. However, we are not relying on a benign market scenario to improve  
our financial performance.                                                      

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Marine & Protective Coatings                                                    
Sales 2002: EUR 759 million; 2001: EUR 729 million                              

This business is the worldwide market leader for Marine Antifouling and Heavy   
Industry Anticorrosion Coatings under the International(R) brand.               

2002 was another year of strong performance with growth in sales and operating  
income across all market sectors and geographic regions.                        

Marine Coatings benefited from a high level of newbuilding activity, in         
particular in Korea and China. In October, it strengthened its position in the  
Korean market by increasing its shareholding in the joint venture with DPI to   
60 percent and by acquiring the Marine Coatings factory from its partner.       

During the year, the business has been phasing out tin-containing antifouling   
in preparation for the IMO's (International Maritime Organization) ban on the   
application of tin-based antifouling from January 1, 2003. With the patented    
Ecoloflex(R) tin-free antifouling, the business has a good position with proven 
technology going forward.                                                       

The Protective Coatings business had an excellent year with high activity in    
the Heavy Industry market. In particular, supplies to the oil and gas offshore  
industry were buoyant with new construction of platforms and FPSO (Floating     
Production Storage and Offloading) units. Sales of the fire proofing material   
Chartek(R) for offshore installations were excellent.                           

The Yacht business also had a strong year in the retail/maintenance market in   
the United States and Europe. In May, we strengthened the business through the  
acquisition of the U.S. Paint Yacht and Aerospace coatings under the Awlgrip(R) 
brand. This acquisition added substantially to the product portfolio in the     
topsides finishes segment of the professional superyacht market.                

Car Refinishes                                                                  
Sales 2002: EUR 713 million; 2001: EUR 708 million                              

Car Refinishes once again proved that its strategy of global presence, in all   
relevant market segments, with leading innovative products, services and        
software allows it to find the best response under any market conditions.       
Despite a soft economy, we were able to maintain sales through intensified      
market development efforts, restructuring, and rigorous cost containment.       

In Europe West, sales improved despite a shrinking market, and Sikkens(R)       
Autowave(R) became the leading waterborne basecoat in the market. In North      
America, sales and operating income showed satisfactory growth, reflecting      
successful product launches such as Sikkens(R) Autobase(R) Plus and Sikkens(R)  
Autoclear(R) III. In Europe East, the financial crisis in Turkey is wearing     
off. Asia experienced a real turnaround with income growing almost 50 percent,  
spurred by multisegment sales and cost cutting. South America continued to be   
affected by a failing economy, but market share grew. Earnings also improved in 
Africa and the Middle East, where we are starting a multisegment market         
approach and are building up the organization. We continue to strengthen our    
position in the Commercial Vehicles market by building upon our extended        
product range, including the Mason CT(R) and U-Tech(TM)-brands.                 

Sikkens(R) Autobase(R) Plus delivered on its promise of being the leading       
solvent-borne basecoat in the industry with rapidly growing sales around the    
world, particularly in North America.                                           

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                                                                              43

We set up a new unit (AMS), aimed at providing comprehensive accident           
management services to insurance companies, bodyshops and fleet owners,         
facilitating damage settlement within the total repair chain.                   

We have created a dedicated global organization to strengthen our relationships 
with car manufacturers and are making good progress in securing automotive      
aftermarket approvals.                                                          

Industrial Products                                                             
Sales 2002: EUR 532 million; 2001: EUR 533 million                              

Volumes grew under market conditions that remained soft in most areas. Our      
Asian wood adhesives activities showed the strongest growth, reflecting         
increased demand from a booming furniture industry in China. Growth was also    
seen in the Americas. Capacity expansion in North America to support growing    
sales of impregnated paper to the flooring industry was well timed. Expancel(R) 
microspheres show continued growth. In all major areas of activity better       
margins based on more efficient production and purchasing processes in          
combination with stringent cost control resulted in operating income that was   
considerably higher than in the previous year. Better management of operational 
working capital contributed to this positive development. The expected effects  
of restructuring projects have materialized.                                    

A continued strong focus on R&D enabled us to launch a number of new systems    
within wood adhesives for the furniture and construction industry and within    
impregnated papers to the flooring industry. New Expancel(R) qualities strongly 
boosted sales to the shoe industry.                                             

A greenfield investment in Brazil for the production of impregnated papers came 
on stream toward the end of the year. Interquimec SA, Ecuador, which we         
acquired in 2001, is now well integrated in our South American resins and       
adhesives activities.                                                           

CHEMICALS                                                                       

Business review                                                                 

In the course of 2002 the Chemical Industry in general saw hardly any           
performance improvement compared to a very difficult 2001. The Polymer Industry 
and the Pulp & Paper Industry, two of our major customer segments, faced volume 
and/or intensified price competition, which negatively impacted our             
performance. Restructuring programs, already in place from 2001, to a certain   
extent compensated for lower volumes or margins. In addition, higher pension    
costs had a negative impact on our earnings.                                    

During 2002 we implemented either growth-based or cash flow-based management    
for our various business segments, following an earlier strategic review.       
Simultaneously, we started a program to further inspire and develop our people. 
A third effort was put in place to boost innovation throughout Chemicals in     
order to enhance long-term growth and profit, and a small Innovation Unit was   
formed. This unit will establish a network across business units to fully       
exploit innovation opportunities, foster cross-fertilization, and set new rules 
for the game. New business concepts will be placed in an "incubator" to ensure  
rapid development and effective exploitation.                                   

In 2002 we made some selective acquisitions. In acquiring the Industrial        
Specialties from Crompton we boosted our North American position and improved   
our presence in Asia, while providing a platform for further product            
development and business growth. Mochem, a small start-up company, was acquired 
to strengthen our High Purity Metal Organics business, which supplies the       
electronics and telecommunication                                               

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44                                                                              

industries. Base Chemicals became full owner of ECI Elektro-Chemie GmbH by      
acquiring TUI's 50 percent share. Further portfolio changes included the        
divestment of the lead stabilizer business and our carbon disulfide plant in    
Indonesia.                                                                      

As a consequence of the strategic review we made some internal movements.       
Plastics and Processing Additives lacked critical mass following the management 
buyout of the lead stabilizer business, and PVC Additives was moved to          
Functional Chemicals with Polysulfides going to the Innovation Unit. The CMC    
business was transferred from Functional Chemicals to Surface Chemistry in      
order to create a strong Cellulosic Specialties business together with Rheology 
Additives.                                                                      

A new silica sol plant started up in Wisconsin to support our growing retention 
agent business for the American paper industry. A new Kromasil(R) production    
plant came into operation in Sweden to reinforce this excellently developing    
business of separation chemicals for pharmaceuticals. The first large-scale     
monochloroacetic acid plant in China was inaugurated in June. Our Cellulosic    
Specialties expanded production in the Netherlands and Italy and a new type of  
methyl-based Bermocoll(R) thickener was introduced to the market.               

Decisions were taken during the year to invest in a Resins plant in China to    
support the fast growing market for coatings and to invest in state-of-the-art  
hydroprocessing capacity in North America to more effectively supply their      
growing market. In addition, we decided to expand Ethylene Amines capacity in   
Sweden. To satisfy growing demand from pipeline customers in Rotterdam, we are  
currently increasing chlorine capacity.                                         

An agreement was reached with the Dutch government to cease regular chlorine    
transportation in the Netherlands as of January 1, 2006. As a consequence       
chlorine capacity in Rotterdam will be further expanded and chlorine and        
monochloroacetic acid activities in Hengelo will be transferred to Delfzijl.    

Restructuring efforts continued forcefully throughout Chemicals during 2002     
concentrating on lowering production and administrative costs, improving supply 
chain efficiency and product optimization. Several of these programs will       
continue into 2003.                                                             

Most Chemicals business units managed to substantially lower their operating    
working capital in 2002.                                                        

Overall, Chemical's sales of EUR 4.6 billion were flat compared to 2001.        
Operating income increased by 1 percent to EUR 344 million, which is 7.5 percent
of sales (2001: 7.4 percent).                                                   

Chemicals will continue to focus on profitable growth, serving customers,       
growing people, enhanced innovation throughout the group, and investing in line 
with its portfolio strategy. This approach, combined with superior technology   
and lowest cost, provides the basis for the targeted return over the business   
cycle of 2.5 percent over the cost of capital, which corresponds to a return on 
investment of about 17 percent.                                                 

Developments in the Chemicals business units                                    

Pulp and Paper Chemicals                                                        
Sales 2002: EUR 969 million; 2001: EUR 1,020 million                            

During the year, Pulp & Paper Chemicals was confronted with a downturn in the   
pulp and paper industry, particularly in Europe and North America. Overcapacity 
and fierce competition forced down selling prices.                              

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                                                                              45

Operating income was lower, mainly due to lower margins in the first half of    
the year. However, improvement occurred later in the year, which is expected to 
continue into 2003.                                                             

North America registered the weakest performance for both pulp bleaching and    
paper chemicals, reflecting paper machine shutdowns and total mill closures. By 
the end of the year the situation for bleaching chemicals improved as European  
and North American markets began to move toward a better balance between demand 
and supply. In South America, particularly in Brazil and Chile, our bleaching   
chemicals show promising growth, and further capacity expansion may be needed   
there. The situation in Asia has improved considerably and our operations there 
are making good progress.                                                       

As cost efficiency is an essential competitive tool, we initiated in 2001 a     
comprehensive restructuring program covering most operations of Pulp & Paper    
Chemicals in Europe and North America. This program primarily focuses on        
administrative and production costs but also includes measures to improve       
efficiency in the supply chain with key customers. These measures have affected 
more than 300 jobs.                                                             

The chlorine dioxide concept, which involves on-site production of this         
bleaching chemical at customers' plants managed from a Pulp & Paper Chemicals   
Remote Operations Center, is very successful. Several new units have been       
established at customer mills in Europe and South America, resulting in         
improved efficiency and closer cooperation.                                     

The development of remote process control is also a prerequisite for the        
substantial restructuring measures we are now implementing at our own plants.   
Integration of new IT and chemical process technology forms an essential part   
of systems for the supply of chemicals on site. Such systems are now being      
developed and will be provided by us as the chemicals supplier.                 

Demand for our new wet strength agents with improved properties and our         
retention systems with several new components is growing. The opening of a new  
plant for silica sols in Howard, Wisconsin, completed our supply structure for  
retention agents to the North American paper industry.                          

Within our range of specialty products, separation chemicals for                
pharmaceuticals are enjoying excellent market growth, and a new Kromasil(R)     
factory came on stream in Bohus, Sweden. Restructuring measures and organic     
growth resulted in improved performance for our electrochemicals equipment unit 
Permascand and the water treatment projects Purate and MPP systems.             

Functional Chemicals                                                            
Sales 2002: EUR 769 million; 2001: EUR 785 million                              

Functional Chemicals can look back on a challenging year, with sales slightly   
below 2001. A decline in raw material prices for all product groups,            
particularly earlier in the year, and restructuring efforts contributed to a    
substantial improvement in operating income.                                    

Under tight market supply conditions, the results for Ethylene Amines remained  
favorable. Phosphorus Chemicals, benefiting from its restructuring efforts and  
improving markets in polyurethane foams, recovered strongly from the previous   
year. Led by monochloroacetic acid, Industrial Chemicals continued to perform   
well. Adverse market conditions, particularly in North America and Asia         
Pacific, prevailed in our Chelates business. Even though a strongly improved    
cost structure and lower raw material prices had a positive effect on earnings, 
the financial performance of this unit remained unsatisfactory. Sulfur Products 
suffered from rapidly shrinking markets in the rayon industry and from poor     
market conditions in general in Asia                                            

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46                                                                              

Pacific. As a consequence, we divested the Indonesian carbon disulfide plant.   
On a more positive note, Lubricants posted a modest improvement.                

The successful start-up of the grassroots monochloroacetic acid plant in China  
and the capacity expansion on stream in carboxymethylcellulose in Arnhem and    
Novara, Italy, considerably strengthened the Industrial Chemicals business. To  
ensure continuity of supply when regular chlorine transports are discontinued   
in the Netherlands in 2006, production of monochloroacetic acid will be         
relocated from Hengelo to Delfzijl.                                             

Commitment to the Ethylene Amines business was reinforced by the decision to    
invest in new production capacity.                                              

Surface Chemistry                                                               
Sales 2002: EUR 752 million; 2001: EUR 715 million                              

The slowdown in the world economy also impacted the three business areas within 
Surface Chemistry, causing operating income to remain clearly below the         
previous year's level.                                                          

Compared to 2001, growth rates and margins for our Surfactants declined in all  
regions. In particular, industrial surfactants and surfactants for agro         
applications were under pressure. The more consumer-related business (fabric    
care and cleaning) performed well during 2002 as in previous years. The         
Japanese joint venture Lion Akzo Corporation benefited from increased demand in 
the fabric care segment.                                                        

The acquisition of the Industrial Specialties business of Crompton Corporation  
considerably boosted our position in North America and is also a significant    
step forward in our strategy to become well established in Asia. The            
acquisition adds to our strong presence in fatty amine derivatives and provides 
a platform for further product development and business growth. The integration 
is progressing well.                                                            

Our Oleochemicals business recorded a steady sales volume in 2002, but margins  
were clearly below 2000 and 2001 record levels, as prices of natural oils and   
fats rose during the year. Selective investment projects initiated during 2002  
will contribute to further growth in the years to come.                         

Rheology Additives (cellulosic specialties for the paint and building           
industries) experienced a slowdown in growth, reflecting developments in the    
large economies in Europe and South America, but overall performance was in     
line with 2001. Our new methyl-based Bermocoll(R) thickener was introduced to   
the market and is developing according to plan.                                 

Polymer Chemicals                                                               
Sales 2002: EUR 560 million; 2001: EUR 584 million                              

Operating income in 2002 was disappointing as a consequence of a sluggish       
economy, unfavorable currency developments (particularly the U.S. dollar        
against the euro), and a further deterioration of margins due to fierce price   
competition.                                                                    

In the last quarter of 2002 we acquired Mochem, a small German start-up         
company, strengthening our High Purity Metal Organics business, which supplies  
the electronics and telecommunications industries.                              

Our 50 percent Japanese joint venture Kayaku Akzo Corporation continued to      
suffer from the slow Japanese economy. The majority-owned Chinese joint         
ventures TANP and CANP did well and benefited                                   

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                                                                              47

from healthy growth in China and Asia in general. Our Russian joint venture     
Ankorit also performed satisfactorily.                                          

Polymer Chemicals has a transition program in place to restore the healthy      
growth and profitability performance demonstrated in the 1996-2000 period.      
Initiatives are already underway to achieve this. These involve four main       
thrusts, starting with a reduction of the number of sites where Organic         
Peroxides will be manufactured; two have already been discontinued, three more  
will follow in the course of 2003. In addition, we are implementing a more      
efficient global Supply Chain and Customer Relationship Management system,      
based on one global SAP system, which is already operational. Innovation and    
New Business Development are receiving heavy emphasis, as is the securing of a  
gradual improvement in margins.                                                 

Base Chemicals                                                                  
Sales 2002: EUR 464 million; 2001: EUR 357 million                              

Despite lower caustic prices, Base Chemicals' operating income improved due to  
higher volumes and lower costs.                                                 

In order to meet increasing demand in the Rotterdam area, local membrane        
electrolysis capacity will be expanded from 360,000 to 450,000 tons per annum.  
The project will come on stream in the last quarter of 2003.                    

An agreement was reached with the authorities to cease regular chlorine         
transportation in the Netherlands as of January 1, 2006. As a consequence,      
membrane electrolysis capacity in Rotterdam will be further expanded to 500,000 
tons per annum and the chlorine and MCA activities in Hengelo, the Netherlands, 
will be transferred to Delfzijl, the Netherlands. This relocation will be       
carefully aligned with the closure of the diaphragm electrolysis and            
chloromethane plants in Delfzijl announced last year. The net effect will be a  
reduction of the workforce by some 100 employees.                               

In the fourth quarter, Base Chemicals became full owner of ECI Elektro-Chemie   
GmbH, Germany, by acquiring TUI's 50 percent share.                             

The results of the 30 percent joint venture Methanor decreased, mainly due to   
lower prices and a maintenance stop.                                            

Resins                                                                          
Sales 2002: EUR 414 million; 2001: EUR 419 million                              

Despite volume growth, sales declined slightly. Nevertheless, operating income  
improved significantly, aided by lower raw material prices and cost savings.    

In 2002, we completed the integration of recent acquisitions and focused on     
improving efficiencies in the production and supply chain. Emphasis on customer 
relations supported by our technical problem-solving capabilities strengthened  
our position in the generally stagnant Coating and Printing Ink markets.        

Coatings Resins' volumes were up, but price pressure persisted, notably in      
Europe and the Americas. Growth of the majority-owned joint ventures in         
Malaysia and Indonesia continued. The new resins plant to be built in Suzhou,   
China, is one of the first solvent-borne resins foreign investments in that     
fast growing market.                                                            

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Printing Ink and UV Resins, facing tough competition and flat markets, managed  
to increase volumes and results significantly. We restructured UV resins        
manufacturing in Europe and intensified market development efforts in Europe    
and the United States.                                                          

We took important initiatives to increase innovative power and improve          
personnel development.                                                          

Catalysts                                                                       
Sales 2002: EUR 375 million; 2001: EUR 367  million                             

Catalysts maintained its leadership position by delivering new and innovative   
products to the fuels industry. Many of these new products allowed our          
customers to avoid high capital expenditures that would otherwise have been     
needed to meet new and future environmental regulations in the areas of         
emission control and low sulfur fuels.                                          

Operating income was up significantly, compared to 2001. Sales were only        
slightly higher. This gain in performance was attributable to several factors.  
In 2002, we reaped the full benefits from the consolidation of our North        
American FCC production activities. We also benefited from our strengthened     
positions in the performance segments of the HPC market and the FCC additives   
market.                                                                         

We recorded growth in both the HPC and the FCC markets, aided by new            
transportation fuel specifications and the tendency of refiners to use heavier  
feeds than in previous years. In these key areas, we were able to provide       
product and service solutions for difficult challenges our customers were       
facing in their businesses. We are currently investing in state-of-the-art HPC  
capacity in Pasadena, Texas, to supply the growing North American market more   
effectively.                                                                    

The Nippon Ketjen joint venture did even better than in the record year 2001.   
Our Eurecat joint venture had another good year. FCC-S.A. results were lower    
than expected, in part due to the devaluation of the Brazilian real.            

We continue to invest substantially in R&D. Our R&D units keep on producing     
innovative technologies that bring immediate benefits to our customers in the   
fuel industry.                                                                  

Salt                                                                            
Sales 2002: EUR 269 million; 2001: EUR 261 million                              

Salt delivered a solid performance in 2002. Sales and operating income improved 
slightly on 2001, and costs were kept under tight control. Performance          
reflected high sales to the chemical industry throughout the year, offset by    
lower results for deicing salt. We continued to invest in technology in order   
to strengthen our position as global leader in vacuum salt and solution mining. 

The specialty salt business failed to meet financial targets in a market        
characterized by overcapacity. A restructuring program-including closure of one 
of the three production locations (Stade, Germany), reduction of headcount in   
the Hengelo location (the Netherlands), and upgrading of the product            
portfolio-is in full progress. The program is expected to be fully effective by 
the end of 2003.                                                                

In its first fully operational year, the solar salt facility in Onslow, Western 
Australia, performed above expectations both in production and sales.           

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Energy                                                                          
Sales 2002: EUR 158 million; 2001: EUR 165 million                              

Operating income from our gas, electricity, and steam supply activities was on  
par with the previous year, despite volatile oil and gas markets throughout     
2002. Our cogeneration joint ventures operated reliably, and the future of      
cogeneration in Europe will be better secured in a new European Council         
directive.                                                                      

Other Activities                                                                

Flexsys                                                                         
Weak economic conditions during the second half of 2001 continued, resulting in 
essentially flat volumes for our 50 percent rubber chemicals joint venture. Due 
to lower prices caused by highly competitive market conditions, revenues in     
2002 were substantially lower. Several cost savings and production              
restructuring programs were implemented, which offset a significant part of the 
lower revenues effect. Flexsys sold and exited from its nonstaining             
antioxidants business (NSAO), which had been a minor activity based on          
production at its Nitro, West Virginia plant.                                   

Delamine                                                                        
Sales volumes for this 50 percent ethylene amines joint venture were higher     
than in the previous year but selling prices and results were lower. A major    
maintenance stop at the Delfzijl, Netherlands plant and lower export revenues   
due to strengthening of the euro in the second half of the year were offset by  
lower overall raw material costs than in 2001.                                  

SOURCES AND AVAILABILITY OF RAW MATERIALS                                       

Raw materials essential to our business are purchased in the normal course of   
business from numerous suppliers worldwide. In principal, these materials are   
widely available from multiple sources. No serious shortages or delays were     
encountered in 2002 and none are expected in 2003.                              

MARKETING AND DISTRIBUTION                                                      

The Company sells its products in more than 130 countries. The sales, marketing 
and distribution functions are decentralized within the Company. Each business  
unit has its own sales, marketing and distribution network for its products.    
The organization of these functions varies from business unit to business unit. 

For the geographical distribution of sales, see Item 5 "Operating and Financial 
Review and Prospects".                                                          

Pharma                                                                          
The Company sells its human-healthcare prescription medicines primarily through 
medical representatives to wholesale drug distributors, independent and chain   
pharmacies, hospitals, government entities and other institutions. The products 
are dispensed to the public through prescriptions written by physicians.        
Similar procedures generally apply for the animal-healthcare products, whereby  
representatives of the Company visit veterinarians or farmers.                  

The Company deploys sales forces of representatives and supporting medical      
staff to visit medical prescribers and healthcare purchasers or veterinarians   
to promote the Company's (prescription) products.                               

However, the traditional relationship between the Company and its ultimate      
customers is changing as a result of the Internet. Patients are better informed 
and want to have more of a say in their treatment. The                          

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50                                                                              

Internet is a unique tool for establishing contacts between the Company, the    
prescribers of its products, and the end users. The Company is developing a     
coherent e-business strategy focused on marketing aspects and knowledge         
management, which fully covers all disciplines. The e-business opportunities    
are also exploited in the veterinary business through Vetstream, an electronic  
publishing company, providing high-quality subscription services to veterinary  
professionals.                                                                  
For Diosynth, the producer of active ingredients for the pharmaceutical         
industry, 80 percent of the sales are to innovators in the United States and    
the European Union.                                                             

Coatings                                                                        
Coatings are sold through a range of distribution channels. The operations in   
the Decorative sector are serving the Retail (Do-it-yourself), Trade            
(Professionals) and Specialties markets. Due to concentration of retailers,     
their purchasing power is increasing. The products of the other coatings        
activities are mainly sold through a direct sales force.                        

Chemicals                                                                       
Chemical products are sold in a wide range of industries. These products are    
either marketed directly or through independent merchants, wholesalers and      
distributors who resell them to smaller users. Commodity products are sold      
through a direct sales force, or through distributors primarily to other        
operators in the chemical industry.                                             

INTELLECTUAL PROPERTY                                                           

The Company has numerous patent applications and patents, trademark             
applications and registrations, domain names and trade secrets, which all help  
to protect its products, know-how and technology. Where appropriate, the        
Company covers its new products, processes, and other inventions by patent      
applications in the relevant regional markets. Protection for individual        
products lasts for periods depending on the date on which a patent application  
was filed, and the legal lifetime of patents in the various countries,          
including patent term extensions for pharmaceutical products. The protection of 
intellectual property rights may also vary from country to country, depending   
upon its scope and the various granting and registration systems. In most       
industrial countries, patent protection exists for inventions in all areas of   
technology in which the Company is active. The Company monitors its             
competitors, enforces its own intellectual property rights whenever and         
wherever advisable and challenges third party patents, trademarks and domain    
names whenever appropriate. Intellectual property agreements are in force with  
many of the Company's employees, and there are a number of confidentiality      
agreements in force with customers and suppliers to protect the Company's know- 
how.                                                                            

GOVERNMENT REGULATION                                                           

Akzo Nobel's businesses are subject to the normal regulatory framework          
applicable to a pharmaceutical and chemical company, notably various health,    
safety and environmental rules both at national and local levels. The Company   
also voluntarily conforms to international and national codes of best practice  
appropriate to its business. In general, compliance with these existing         
regulations and codes does not and should not materially affect the operations, 
competitive position and earnings of any of the Company's businesses.           

Besides the normal regulatory framework for chemical companies, the Company is  
subject to more extensive regulations for the veterinary and human              
pharmaceutical industry*. The international                                     

* In this section, the term "pharmaceutical industry" encompasses both human    
and animal healthcare, unless specifically indicated.                           

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                                                                              51

pharmaceutical industry is highly regulated. National and supranational         
regulatory authorities administer numerous laws and regulations regarding the   
testing, approval, manufacturing, importing, labeling and marketing of drugs,   
and also review the safety and effectiveness of pharmaceutical products.        
Further controls exist on the non-clinical and clinical development of          
pharmaceutical products in particular. These regulatory requirements are a      
major factor in determining whether a substance can be developed into a         
marketable product and the amount of time and expense associated with such      
development. The Company believes it is in material compliance with all         
applicable regulations in the jurisdictions where it operates.                  

The introduction of new pharmaceutical products generally entails a lengthy     
approval process. Of particular importance is the requirement in all major      
countries that products be authorized or registered prior to marketing and that 
such authorization or registration is maintained subsequently. The regulatory   
process requires increased testing and documentation for clearance of new       
drugs, and a corresponding increase in the expense of product development. To   
register a pharmaceutical product, a registration file containing evidence      
establishing the quality, safety and efficacy of the product must be submitted  
to regulatory authorities. The registration process may take one to several     
years, depending on the jurisdiction, the quality of the data submitted, the    
efficiency of the registration authority's procedures and the nature of the     
product.                                                                        

In the United States, applications for drug registration are submitted to and   
reviewed by the United States Food and Drug Administration ("FDA").             
Registrations of veterinary vaccines are reviewed by the US Department of       
Agriculture ("USDA") in a slightly different procedure. The FDA regulates the   
testing, approval, manufacturing and labeling of pharmaceutical products        
intended for commercialization in the United States, as well as the monitoring  
of all pharmaceutical products currently on the U.S. market. The pharmaceutical 
development and registration process is typically intensive, lengthy and        
rigorous. A new drug application is filed with the FDA if the data demonstrate  
sufficient quality, safety and efficacy. The new drug application must contain  
all the specific information that has been gathered and typically covers all    
subjects tested in clinical trials. Very similar requirements apply to field    
trials for veterinary drugs and to vaccine registrations with the USDA.         
Once the FDA approves the new drug application, the new pharmaceutical becomes  
available for physicians or veterinarians to prescribe. Thereafter, the drug    
owner must submit periodic reports to the FDA, including any cases of adverse   
reactions. For some medications, the FDA requires additional studies to         
evaluate long-term effects or to gather information on the use of the product   
under special conditions. The FDA also requires compliance with standards       
relating to laboratory, clinical and manufacturing practices.                   

In the European Union ("EU"), there are two main procedures for application for 
marketing authorization, namely the Centralized Procedure and the Mutual        
Recognition Procedure. In the Centralized Procedure, applications are made to   
the European Medicines Evaluation Agency for review and a scientific opinion.   
The EMEA's opinion is forwarded to the European commission for authorization,   
which is valid across all EU member-states. The Centralized Procedure is        
mandatory for all biotechnology products and optional for other new chemical    
compounds or innovative medicinal products. In the Mutual Recognition           
Procedure, a first authorization is granted by a single EU member-state.        
Subsequently, mutual recognition of this first authorization can be sought from 
the remaining EU member-states.                                                 
EU member-states also run their own pharmacovigilance systems to which post-    
marketing adverse events are reported. A single pharmacovigilance system for    
the entire EU is being developed.                                               

In Japan, applications for marketing authorization are made to one of the       
Prefectural Governments. For new drugs, applications are forwarded tot the      
Pharmaceutical and Medical Devices Evaluation Center (the Evaluation Center),   
from which it is forwarded to the Organisation for Pharmaceutical Safety and    
Research                                                                        

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52                                                                              

("KIKO") for a check on GLP and GCP compliance and a reliability review of the  
data. When KIKO has completed the review, the Evaluation Center performs a      
scientific review of the application and prepares a review report. This review  
report is forwarded tot the Ministry of Health, Labor and Welfare ("MHLW"). The 
review report of the Evaluation Center is also forwarded to the Pharmaceutical  
Affairs Food & Sanitation Council ("PAFSC") a consultative body to the MHLW.    
After advice from the PAFSC, only the Minister of MHLW is authorized to issue a 
license.                                                                        

PRICE CONTROLS                                                                  

In addition to the forms of regulation already referred to, in many countries   
the prices of human pharmaceutical products are controlled by law and are       
subject to drug reimbursement programs with varying price control mechanisms.   
Governments may also influence the prices of pharmaceutical products through    
their control of national healthcare organizations, which may bear a large part 
of the cost of supplying such products to consumers. Generic substitution       
becomes an increasingly important issue worldwide, and it is actively supported 
by governmental and healthcare policies in several countries.                   
In the United States, debate over the reform of the healthcare system has       
resulted in an increased focus on pricing. Although there are currently no      
government price controls over private sector purchases in the United States,   
federal legislation requires pharmaceutical manufacturers to pay prescribed     
rebates on certain drugs to enable them to be eligible for reimbursement under  
healthcare programs. In the absence of new government regulation, managed care  
has become a potent force in the market place that increases downward pressure  
on the prices of the pharmaceutical products. In addition, the current national 
debate over Medicare reform could increase pricing pressures. If Medicare       
reform results in the provision of outpatient pharmaceutical coverage for       
beneficiaries, the U.S. government could use its enormous purchasing power to   
demand discounts from pharmaceutical companies thereby creating de facto price  
controls on prescription drugs. On the other hand, Medicare drug reimbursement  
legislation may increase the volume of pharmaceutical drug purchases,           
offsetting, at least in part, potential price discounts. As a result, we expect 
that pressure on pricing and operating results will continue.                   

In the EU, governments influence the price of pharmaceutical products through   
their control of national healthcare systems that fund a large part of the cost 
of such products to consumers. The downward pressure on healthcare systems in   
general, particularly prescription drugs, has become very intense. As a result, 
increasingly high barriers are being erected to the entry of new products, as   
exemplified by the National Institute for Clinical Excellence in the United     
Kingdom, which evaluates the data supporting new medicines and passes           
reimbursement recommendations to the government. In addition, in some countries 
cross-border imports from low-priced markets (parallel imports) exert a         
commercial pressure on pricing within a country.                                

In Japan, the National Health Ministry biannually reviews the pharmaceutical    
prices of individual products. In the past, these reviews have resulted in      
price reductions. The Japanese government intends a healthcare reform and the   
pharmaceutical pricing system will be one of the issues closely looked at. Key  
issues are the evaluation of innovative products and the pricing of long-listed 
products, including the biannual reduction of reimbursement prices adjusted for 
actual discounts given. The previously proposed reference price system has been 
abandoned by the government.                                                    

C. ORGANIZATIONAL STRUCTURE                                                     

Reference is made to Exhibit 8 for a list of the Company's subsidiaries.        

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                                                                              53

D. PROPERTY, PLANT AND EQUIPMENT                                                

A substantial portion of Akzo Nobel's principal production plants and research  
facilities are located in Europe and North America. Akzo Nobel's principal      
production plants and research facilities are located in the Netherlands,       
Germany, United Kingdom, Sweden, France, Italy, the United States and Brazil.   
In total, Akzo Nobel has over 300 production plants throughout the world.       

The most important production sites for Pharma are in Oss and Boxmeer, the      
Netherlands; Dublin, Ireland; Unterschleissheim, Germany; and West Orange,      
New Jersey. The major Coatings sites are based in Montataire, France;           
Sassenheim, the Netherlands; Vilvoorde, Belgium; Cologne, Germany; Barcelona,   
Spain; Cernobbio, Italy; Malmoe, Sweden; Darwen and Hull, United Kingdom;       
Houston, Texas; Columbus, Ohio; High Point, North Carolina; Nashville,          
Tennessee; Sao Paulo, Brazil; and Melbourne, Australia. For Chemicals, the      
major production sites are located in Delfzijl, Hengelo, Rotterdam, and         
Amsterdam, the Netherlands; Bohus and Stenungsund, Sweden; and Pasadena, Texas. 

Akzo Nobel's policy is generally to acquire its own facilities. The net book    
value of its property, plant equipment was EUR 4.4 billion at December 31,      
2002. The book value of property, plant and equipment financed by installment   
buying and leasing was EUR 42 million at December 31, 2002. Akzo Nobel has      
rented certain offices and warehouses by means of operational leases.           

Akzo Nobel believes that its production plants and research facilities are well 
maintained and generally adequate to meet its needs for the foreseeable future. 

Further discussions on relevant developments in property, plant and equipment   
are included in Item 4.B under "Business Review and Developments at Business    
Units".                                                                         

For environmental issues affecting the Company's properties, reference is made  
to Legal Proceedings in Item 8 "Financial Information".                         

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54                                                                              

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                            

The comparative figures have been restated to reflect the changes in accounting 
principles in 2002 as set forth below. Unless stated otherwise, net income and  
operating income figures are exclusive of extraordinary and nonrecurring items. 

Nonrecurring items relate to income and expenses resulting from normal business 
operations, which, because of their size or nature, are disclosed separately to 
give a better understanding of the underlying result for the period. These      
include items such as restructurings and impairment charges, and significant    
gains and losses on the disposal of businesses, not meeting the requirements    
for extraordinary items. Operating income before nonrecurring items is one of   
the key figures management uses to assess the performance of the Company, as    
these figures better reflect the underlying trends in the results of the        
activities.                                                                     
In this Annual Report break downs of operating income before nonrecurring       
items, of nonrecurring items, and of operating income, after nonrecurring       
items, per segment are disclosed and reported on.                               

The following discussion is based on the consolidated financial statements of   
Akzo Nobel included in this annual report under Item 18 and should be read in   
conjunction with those statements and the other financial information included  
herein, including the industry segment information and information by           
geographical area.                                                              

The consolidated financial statements of Akzo Nobel appearing in this annual    
report are prepared in accordance with NL GAAP, which differ in certain         
respects from US GAAP. The significant differences between NL GAAP and US GAAP  
affecting Akzo Nobel's net income and shareholders' equity are described in     
Note 21 of the Notes to the Consolidated Financial Statements of Akzo Nobel.    

Change in Accounting Principles                                                 

In line with recently issued directives of the Netherlands Accounting Standards 
Board, the Company changed its accounting for the final dividend proposal and   
for the Akzo Nobel Employee Share Plan, effective January 1, 2002.              

Dividend Proposal                                                               
The Company used to recognize the proposal for the final dividend as a          
liability under current liabilities. Under the new standard, of which early     
adoption is encouraged, a dividend shall not be recognized as a liability until 
it has been approved by the General Meeting of Shareholders. Comparative        
figures have been restated. The effect of this new principle on shareholders'   
equity at December 31, 2001, was an increase of EUR 257 million.                

Akzo Nobel Employee Share Plan                                                  
Under the Akzo Nobel Employee Share Plan, Akzo Nobel N.V. common shares are     
granted for free to the employees after a certain vesting period. In accordance 
with the new standard, effective for rights granted from 2002 onwards, the      
value of the shares on the date of the grant is recognized as a charge in the   
statement of income spread over the vesting period, which in general is 3       
years. For 2002, the net charge to income amounted to EUR 2 million.            

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                                                                              55

2002 COMPARED TO 2001                                                           

The economy in the year 2002 did not bring what we had hoped for. The           
anticipated recovery in the second half of the year failed to materialize.      
After a strong first quarter the economy slipped further back in almost all our 
markets. At the same time, the euro strengthened relative to almost all         
currencies. And to make matters worse, the continuing dramatic decline in stock 
prices negatively affected pension assets, which translated into a pre-tax      
provision for additional minimum pension liabilities of EUR 1.8 billion on the  
balance sheet and a EUR 80 million increase in pension costs.                   

Against that difficult background, Akzo Nobel weathered the storm reasonably    
well. Our results lagged only mildly behind the previous two years, which were  
record years in the history of the Company.                                     

Although our Coatings and Chemicals operations clearly did better than in 2001, 
they could not fully compensate for the higher pension costs, negative currency 
effects, and lower Pharma earnings.                                             

In light of these adverse developments, we revised our plans in the course of   
the year. Capital expenditures were cut to offset the negative influence of     
additional cash payments into pension funds and adjust to changed market        
expectations. In 2001, we had already embarked on an ambitious plan to promote  
operational excellence. The associated program to reduce the number of jobs by  
3,500 was accelerated and extended to 5,500.                                    

Finally, we reduced our working capital and kept expenditures for acquisitions  
and proceeds from divestments more or less in balance.                          

These actions have resulted in a reduction of net debt by EUR 0.8 billion and a 
lean organization, which we believe will enable us to benefit from a potential  
upturn in the market.                                                           
The investments and acquisitions that did take place were made in line with our 
priorities. Pharma's investments were nearly twice the depreciation level and   
focused on providing the high-quality conditions required for further growth.   
Coatings and Chemicals reduced their investments to well below depreciation and 
favored priority businesses and regions. Particularly China and Central and     
Eastern Europe enjoyed their attention. In these areas, growth continued at a   
high rate, and we opened several new factories to participate in this           
development.                                                                    

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56                                                                              

SALES, COSTS AND INCOME                                                         

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-------------------------------------------------------------------------------------
                                                     Condensed statement of income   

Millions of euros                                            2002           2001     
-------------------------------------------------------------------------------------
Net sales                                                  14,002         14,110     
Cost of sales                                              (7,301)        (7,393)    
                                                           -------        --------   
Gross margin                                                6,701          6,717     
Selling, R&D, and G&A expenses, other results              (5,209)        (5,146)    
                                                           -------        --------   
Operating income before nonrecurring items*                 1,492          1,571     
Nonrecurring items*                                          (130)          (449)    
                                                           -------        --------   
Operating income, after nonrecurring items*                 1,362          1,122     
Financing charges, net                                       (204)          (257)    
                                                           -------        --------   
Operating income less financing charges                     1,158            865     
Income taxes                                                 (335)          (281)    
                                                           -------        --------   
Earnings of consolidated companies after taxes                823            584     
Earnings from nonconsolidated companies                38            69              
Nonrecurring* gain / (loss) nonconsolidated companies  (8)          (14)             
                                                    ------        ------             
                                                               30             55     
                                                           -------        --------   
Earnings before minority interest                             853            639     
Minority interest                                             (35)           (31)    
                                                           -------        --------   
Net income before extraordinary items                         818            608     
Extraordinary items after taxes                                 -             63     
                                                           -------        --------   
Net income                                                    818            671     
                                                           =======        ========   
Net income excluding extraordinary and                                               
  nonrecurring items*                                         892            930     

*  Nonrecurring items relate to income and expenses resulting from normal       
business operations, which, because of their size or nature, are disclosed
separately to give a better understanding of the underlying result for the
period. These include items such as restructuring and impairment charges, 
 and significant gains and losses on the disposal of businesses, not meeting
the requirements for extraordinary items.                                 

Sales                                                                           
Net sales in 2002 aggregated EUR 14.0 billion, 1 percent down on previous year. 
Autonomous growth was 3 percent, with 2 percent stemming from volume growth and 
1 percent from higher selling prices. All groups received autonomous growth.    
The negative currency translation impact of 3 percent predominantly related to  
the weakening of the U.S. dollar, the Brazilian real, and various Asian         
currencies.                                                                     
Acquisitions added 2 percent, while divestments reduced sales with 3 percent.   
Acquisitions mainly concerned Ferro's powder coatings business and Crompton's   
Industriel Specialties, while divestments mainly related to the Diagnostics     
activities and Printing Inks.                                                   

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                                                                              57

R&D expenses                                                                    
R&D expenses were EUR 912 million, up EUR 65 million (8 percent), primarily     
reflecting Pharma's continuously expanding research activities. Pharma's R&D    
expenses as a percentage of sales were increased to 15 percent (2001: 13        
percent). In 2002, Organon spent 18 percent of its sales on research (2001: 15  
percent). For Coatings and Chemicals this ratio remained unchanged at 3         
percent.                                                                        

Operating Income                                                                
Operating income before nonrecurring items ended 5 percent below 2001, at       
EUR 1,492 million. Coatings and Chemicals did better than in 2001, aided by cost
savings of EUR 65 million realized during 2002. This earnings increase however, 
was more than offset by EUR 80 million higher pension costs, negative currency  
translation effects of EUR 80 million, and lower Pharma earnings. Operating     
income including nonrecurring items amounted to EUR 1,362 million (2001:        
EUR 1,122 million).                                                             

Financing Charges, net                                                          
Financing charges decreased from EUR 257 million in 2001 to EUR 204 million in  
2002. This was the result of a substantial reduction of net borrowings and      
lower short-term interest rates. Furthermore, due to the weaker U.S. dollar,    
interest denominated in this currency translated into lower financing charges.  
Interest coverage improved from 6.1 to 7.3.                                     

Income Taxes                                                                    
The income tax charge for 2002 amounted to 29 percent, compared with 32.5       
percent in 2001, reflecting changes in the geographic distribution of the       
Company's results.                                                              

Earnings from Nonconsolidated Companies                                         
Earnings from nonconsolidated companies decreased from EUR 69 million to EUR 38 
million compared to 2001. Earnings for Acordis, Flexsys and Methanor were       
principally responsible for the decline.                                        

Nonrecurring Items                                                              

The net nonrecurring loss for consolidated companies in 2002 consists of the    
following elements:                                                             

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--------------------------------------------------------
Millions of euros                                       
--------------------------------------------------------
Gains on divestments                             91     
Pension premium refund Sweden                    15     
Asset impairments and restructurings at                 
- Pharma                                       (111)    
- Coatings                                      (26)    
- Chemicals                                     (99)    
--------------------------------------------------------

Total                                          (130)    
========================================================

The nonrecurring restructuring and impairment charges mainly relate to the      
Company's extended restructuring plans at all three groups, which affect 1,500  
additional jobs worldwide. No charge has been recognized for the additional     
global cost-saving plans at Pharma, as the details have not yet been completed. 
The restructuring and impairment charges consist of provisions for severance    
payments and other restructuring costs as well as asset write-downs.            

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58                                                                              

Pharma's nonrecurring items include a write-down of EUR 67 million for the      
gepirone ER (Variza(TM)) know-how intangible asset. In view of the developments 
in 2002, the chances of success have been reviewed. Although the Company has    
good hopes for the future of this product, it still decided (also for prudence  
reasons) to write down this intangible asset, in accordance with the accounting 
standards.                                                                      

The nonrecurring gain on divestments concerns the divestment of Rosemont        
Pharmaceuticals Ltd in the United Kingdom and several other smaller             
divestments.                                                                    

The nonrecurring items at nonconsolidated companies principally relate to       
charges for Acordis.                                                            

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Restructuring of Activities                                                               
                                                                                          
----------------------------------------------------------------------------------------- 
                                                Termination            Exit         Total 
Millions of euros                                  benefits           costs     provision 
----------------------------------------------------------------------------------------- 
Balance at December 31, 2000                           173              95            268 

Changes in exchange rates                                -               1              1 
Additions charged to income as nonrecurring item       163             108            271 
Other additions charged to income                        7               5             12 
Utilization                                           (118)            (34)          (152)

Balance at December 31, 2001                           225             175            400 

Changes in exchange rates                               (3)            (11)           (14)
Additions charged to income as nonrecurring item        68              55            123 
Other additions charged to income                       15               9             24 
Utilization                                           (123)            (78)          (201)
----------------------------------------------------------------------------------------- 

Balance at December 31, 2002                           182             150            332 
========================================================================================= 

2002 movements                                                                  
For the additions charged to income as nonrecurring item, reference is made to  
the disclosure under nonrecurring items in 2002 compared to 2001. The additions 
to termination benefits involve approximately 1,500 jobs at various sites all   
over the world.                                                                 

During 2002, the total amount paid and charged against the related liability    
amounted to EUR 123 million for termination benefits and EUR 78 million for     
exit costs. These payments and charges all concerned the execution of plans     
decided upon during 2002 and prior years.                                       

2001 movements                                                                  
For the additions charged to income as nonrecurring item, reference is made to  
the disclosures under nonrecurring items in 2001 compared to 2000. The          
additions to termination benefits involve approximately 3,500 jobs at various   
sites all over the world.                                                       

The other additions charged to income concern various relatively small          
restructurings at several sites of Coatings and Chemicals.                      

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                                                                              59

During 2001, the total amount paid and charged against the related liability    
was EUR 118 million for termination benefits and EUR 34 million for exit costs. 
These concerned the execution of plans decided upon during 2001 and prior       
years.                                                                          

Sales and Operating Income by Activities                                        
Akzo Nobel strives to maintain strong growth in Pharma, further strengthen and  
expand its Coatings business - the world's largest in its industry - and        
concentrate on improving Chemicals' return and cashflow.                        

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--------------------------------------------------------------------------------------------------------------------  
                               Net sales             Operating income       Nonrecurring*         Operating income    
                                                          before                items            after nonrecurring*  
                                                    nonrecurring* items                                 items         
Millions of euros          2002         2001         2002        2001      2002       2001        2002           2001 
--------------------------------------------------------------------------------------------------------------------- 
Pharma                    4,008        4,044          768         831        21         41         747            790 
Coatings                  5,521        5,591          465         426        19        200         446            226 
Chemicals                 4,598        4,604          344         340        96        218         248            122 
Miscellaneous products,                                                                                               
  intragroup deliveries,                                                                                              
  and eliminations         (125)        (129)         (85)        (26)       (6)       (10)        (79)           (16)
--------------------------------------------------------------------------------------------------------------------- 
Total                    14,002       14,110        1,492       1,571       130        449       1,362          1,122 
===================================================================================================================== 

*  Nonrecurring items relate to income and expenses resulting from normal       
business operations, which, because of their size or nature, are disclosed
separately to give a better understanding of the underlying result for the
period. These include items such as restructuring and impairment charges, 
 and significant gains and losses on the disposal of businesses, not meeting
the requirements for extraordinary items.                                 

Pharma                                                                          

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                    Percentage                                    Percentage 
                  of net sales                                  of net sales 
Business unit             2002     Country of origin                    2002 
-----------------------------------------------------------------------------
Organon                     62     The Netherlands                        27 
Intervet                    26     Germany                                 5 
Diosynth                    12     United Kingdom                          4 
                                   France                                  4 
                                   Other European countries               24 
                                   USA and Canada                         24 
                                   Latin America                           5 
                                   Asia                                    6 
                                   Other regions                           1 
============================================================================ 

In 2002, Pharma's sales ended at EUR 4.0 billion, a slight decrease on 2001.    
Autonomous growth of 6 percent was offset by a 4 percent negative currency      
impact and a 3 percent negative influence of acquisitions and divestments.      

Pharma's operating income decreased 8 percent, ending at EUR 768 million.       
Diosynth achieved a strong performance in 2002, but Organon and Intervet are    
under pressure.                                                                 

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60                                                                              

During 2002, competition from companies that produce generic drugs became more  
aggressive. Also the economic situation in Latin America and elsewhere          
contributed to the turbulent and complex business situation. The weaker U.S.    
dollar and other key currencies had a growing impact on Pharma's earnings as    
compared to 2001. Also higher pension costs had a strong impact on earnings.    

In 2002, the Company significantly increased R&D spendings from 13 percent to   
15 percent of sales, and invested in the launch of two new products, the        
antithrombotic Arixtra(R) and the contraceptive ring NuvaRing(R). At the same   
time, cost savings were actively pursued to protect margins.                    

Earnings of the animal healthcare activities were under pressure from soft      
market conditions, particularly in Latin America, which is an important market  
for cattle and poultry production. Also weak currencies and some inventory      
write-offs adversely impacted operating income.                                 

Diosynth achieved a strong performance with healthy sales and earnings growth.  
Diosynth continues to attract major pharmaceutical companies as well as biotech 
start-ups as customers for its process development and active pharmaceutical    
ingredients production businesses.                                              

Coatings                                                                        

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--------------------------------------------------------------------------------
                            Percentage of                         Percentage of 
                                 net sales                             net sales
Business unit                         2002    Country of origin            2002 
--------------------------------------------------------------------------------
Decorative Coatings                     34    The Netherlands                  6
Industrial Coatings and Finishes        31    Germany                          9
Marine & Protective Coatings            13    Sweden                           8
Car Refinishes                          13    United Kingdom                  11
Industrial Products                      9    France                           9
                                              Other European countries        21
                                              USA and Canada                  19
                                              Latin America                    3
                                              Asia                            10
                                              Other regions                    4
================================================================================

Sales of EUR 5.5 billion were basically flat, compared to 2001. Autonomous      
growth of 3 percent was offset by a negative currency translation effect of     
also 3 percent.                                                                 

Despite difficult economic circumstances and increased pension costs in 2002,   
Coatings achieved a significant improvement in performance through tight cost   
control on all fronts and tight capital management, while some of the effects   
of the far-reaching restructuring programs initiated in 2001 and extended       
during 2002 materialized. The implementation of these restructuring programs is 
on schedule. At December 31, 2002, the workforce has been reduced by 1,400      
employees, relative to the increased target of 2,500. This resulted in cost     
savings of EUR 25 million for 2002.                                             

Coatings' operating income of EUR 465 million was up 9 percent from 2001.       
Return on sales increased to 8.4 percent, against 7.6 percent in 2001. Return   
on investment met the 20 percent threshold in 2002, compared to 18.1 percent in 
2001. Invested capital was 5 percent lower due to tighter working capital       
management and lower capital expenditures.                                      

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                                                                              61

Earnings of Decorative Coatings were significantly up, mainly attributable to   
cost savings and higher margins. The business in Turkey did better compared to  
2001, but remains vulnerable. Earnings of the industrial activities improved,   
although in general the business climate remains weak, especially in Europe.    
Marine & Protective Coatings turned in an excellent performance, particularly   
in Asia. Car Refinishes achieved a stable performance in the face of            
deteriorating market conditions.                                                

In 2002, we continued our selective bolt-on acquisition strategy. By acquiring  
the Ferro Powder Coatings activities in the Americas, the Company was able to   
resolve a major strategic gap. Moreover, it fortified its global leadership     
position in powder coatings with the Ferro businesses in Korea and China, the   
formation of a 50 percent joint venture in Mexico, and the expansion of the     
powder coatings activities in Italy. Further bolt-on acquisitions concerned the 
Awlgrip(R) marine and aerospace coatings businesses, the high performance       
specialty paint businesses of Plascon, United Kingdom, car paints distributors  
in France and Finland, several decorative paint distributors in Germany,        
Switzerland, and the Benelux, and the increase of our shareholding in the Greek 
decorative coatings joint venture Vivechrom to 76 percent. Coatings also        
strengthened its position in the Korean marine coatings market by acquiring the 
Chilseo manufacturing site and at the same time increasing our shareholding in  
the marine coatings joint venture IPK to 60 percent.                            

Chemicals                                                                       

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                                   Percentage                                  Percentage
                                 of net sales                                of net sales
Business unit                            2002    Country of origin                   2002
-----------------------------------------------------------------------------------------
Pulp and Paper Chemicals                   20    The Netherlands                       28
Functional Chemicals                       16    Germany                                8
Surface Chemistry                          15    Sweden                                16
Polymer Chemicals                          11    UK                                     3
Base Chemicals                             10    Other European countries               6
Resins                                      8    USA and Canada                        29
Catalysts                                   8    Latin America                          3
Salt                                        3    Asia                                   6
Plastics and Processing Additives           6    Other regions                          1
Energy                                      3                                            
=========================================================================================

Overall, Chemicals' sales of EUR 4.6 billion were flat compared to 2001.        
Autonomous growth was 2 percent, while currency translation had a negative      
impact of 3 percent. Operating income in 2002 increased slightly to EUR 344     
million, which is 7.5 percent of sales (2001: 7.4 percent). Benefits from the   
restructuring programs and lower raw material prices were offset by the impact  
of the weak economic conditions, lower exchange rates for key currencies, and   
higher pension costs. Return on investment improved as a result of Chemicals'   
tight capital management through control over working capital and lower capital 
expenditures.                                                                   

In the course of 2002 the chemical industry in general saw hardly any           
performance improvement compared to a very difficult 2001. In particular, the   
polymer industry and the pulp and paper industry, two of our major customer     
segments, faced volume and/or fierce price competition, which negatively        
impacted performance. Restructuring programs, already initiated in 2001,        
resulted in cost savings of EUR 40 million and thereby to a certain extent      
compensated for lower volumes and margins. During 2002 these programs were      
accelerated and extended and now aim at a workforce reduction of 2,200 jobs, of 
which 700 had been realized at the end of 2002. In addition, weakening of       
certain key currencies exerted a negative impact on earnings.                   

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62                                                                              

Catalysts turned in a substantially improved performance, reaping benefits from 
cost savings and an improved product portfolio. Functional Chemicals benefited  
from lower raw material prices. Base Chemicals and Salt also did better. At     
Pulp & Paper Chemicals, results remained under pressure, mainly in the United   
States. Polymer Chemicals and Surface Chemistry also suffered from weak market  
conditions.                                                                     

In 2002, Chemicals made some selective acquisitions. Crompton's Industrial      
Specialties boosted the Company's North American position and improved its      
presence in Asia. Mochem, a small start-up company, was acquired to strengthen  
the High Purity Metal Organics business. Base Chemicals became full owner of    
ECI Elektro-Chemie GmbH by acquiring TUI's 50 percent share. Further portfolio  
changes included the divestment of the lead stabilizer business and our carbon  
disulfide plant in Indonesia.                                                   

Capital expenditures are mainly focused on growth products and regions.         

Sales by nonconsolidated companies, on a 100 percent basis, totaled EUR 1.5     
billion. Chemicals' share in earnings of these companies was EUR 40 million,    
after taxes.                                                                    

Geographic Developments                                                         

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------------------------------- 
                                                    Net sales,            Net sales,   Operating income        Identifiable         
                                                  by destination           by origin   before nonrecurring        assets            
                                                                                              items                                 
                                                                                                                                    
Millions of euros                                  2002      2001      2002      2001    2002     2001       2002       2001        
------------------------------------------------------------------------------------------------------------------------------------
The Netherlands                                     816       720     2,662     2,533     191      219      2,618      2,595        
Germany                                           1,084     1,052     1,051     1,070      78       82        819        931        
Sweden                                              517       512     1,184     1,088      89       67        798        831        
United Kingdom                                      963     1,036       911       924      13       38      1,134      1,365        
Other European countries                          3,951     3,964     3,016     3,266     654      712      2,210      1,842        
USA and Canada                                    3,723     3,802     3,318     3,263     149      190      2,772      3,090        
Latin America                                       767       917       506       660      99      104        424        589        
Asia                                              1,513     1,429     1,064     1,039     161      113        838        859        
Other regions                                       668       678       290       267      58       46        306        345        
Eliminations, cash and                                                                                                              
cash equivalents, and nonconsolidated companies,                                                                                    
 net                                                                                                          870        478        
------------------------------------------------------------------------------------------------------------------------------------
Total                                            14,002    14,110    14,002    14,110    1,492   1,571     12,789     12,925        
====================================================================================================================================

In 2002, sales in Latin America decreased to EUR 767 million as a result of     
weaker currencies and soft market conditions, which placed the animal           
healthcare activities of Intervet under pressure. In the United States,         
Pharma's sales of oral contraceptives were affected by generic competition in   
2002. Sales in The Netherlands were higher as a result of higher Chemicals'     
sales, while sales in the United Kingdom decreased due to lower sales from both 
Coatings and Chemicals. Asia sales grew mainly as a result of the strong        
performance of Marine and Protective Coatings, but also Chemicals sales         
increased, mainly in China.                                                     

Development of earnings more or less shows the same picture as sales, except    
for The Netherlands, where operating income was down despite higher sales, due  
to higher pension costs and lower Coatings'                                     

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                                                                              63

operating income earnings. The downturn in the Other European Countries mainly  
stems from lower Pharma earnings.                                               

2001 COMPARED TO 2000                                                           

By many standards 2001 was a turbulent year. The brutal attacks on the United   
States brought about an international war against terrorism and aggravated a    
process of worldwide economic decline, which had previously set in. Against     
this background the Company showed resilience and reported net income close to  
the record earnings of 2000.                                                    

Our high growth in Pharma and the exit from the Fibers business (in 1999) have  
certainly contributed to this performance.                                      

Pharma's strong performance largely compensated for an earnings decline of 5    
percent in Coatings and 24 percent in Chemicals. Although these declines were   
moderate relative to their industrial peers, they only strengthened our         
determination to upgrade further our activities, through internal               
restructurings and portfolio improvements.                                      

We also modified our portfolio to bring it further in line with our priorities. 
We invested heavily in growth in Pharma; capital expenditures increased and     
substantially exceeded depreciation in this segment. In addition, we acquired a 
bridgehead in the United States for our Biotech business. Still, excellent      
results and the divestment of our Diagnostics business created a positive net   
cash balance at Pharma.                                                         

Our Coatings and Chemicals activities funded their investments and acquisitions 
from their own generated cash flow. Emphasis was placed on a limited number of  
targeted acquisitions and divestments in Europe and the United States and some  
important greenfield investments in Asia, notably in China, and in Russia-two   
countries where market growth remained remarkably high during 2001.             

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64                                                                              

SALES, COSTS AND INCOME                                                         

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-------------------------------------------------------------------------------------------------
                                                                   Condensed statement of income 
Millions of euros                                                      2001                2000  
-------------------------------------------------------------------------------------------------
Net sales                                                            14,110              14,003  
Cost of sales                                                        (7,393)             (7,436) 
                                                                     -------             ------- 
Gross margin                                                          6,717               6,567  
Selling, R&D, and G&A expenses, other results                        (5,146)             (4,926) 
                                                                     -------             ------- 
Operating income before nonrecurring items*                           1,571               1,641  
Nonrecurring items*                                                    (449)                (84) 
                                                                     -------             ------- 
Operating income, after nonrecurring items*                           1,122               1,557  
Financing charges, net                                                 (257)               (245) 
                                                                     -------             ------- 
Operating income less financing charges                                 865               1,312  
Income taxes                                                           (281)               (440) 
                                                                     -------             ------- 
Earnings of consolidated companies after taxes                          584                 872  
Earnings from nonconsolidated companies                      69                  65              
Nonrecurring* gain / (loss) nonconsolidated companies       (14)                 78              
                                                          -------             -------            
                                                                         55                 143  
                                                                     -------             ------- 
Earnings before minority interest                                       639               1,015  
Minority interest                                                       (31)                (43) 
                                                                     -------             ------- 
Net income before extraordinary items                                   608                 972  
Extraordinary items after taxes                                          63                 (25) 
                                                                     -------             ------- 
Net income                                                              671                 947  
                                                                    ========             ======= 
Net income excluding extraordinary and nonrecurring items*              930                 956  

*  Nonrecurring items relate to income and expenses resulting from normal       
business operations, which, because of their size or nature, are disclosed
separately to give a better understanding of the underlying result for the
period. These include items such as restructuring and impairment charges, 
 and significant gains and losses on the disposal of businesses, not meeting
the requirements for extraordinary items.                                 

Sales                                                                           
Net sales in 2001 amounted to EUR 14.1 billion, up 1 percent from 2000. Higher  
volume for Pharma was offset by lower volume for Coatings and Chemicals.        
Average selling prices were 2 percent higher. The effect of acquisitions and    
divestments, on balance, was nil, while currency translation had a negative     
effect of 1 percent.                                                            

Operating Income                                                                
Operating income of EUR 1,571 million was 4 percent below the record year 2000. 
Clear growth at Pharma, attributable to its successful product portfolio,       
almost offset the lower results of Coatings and Chemicals. Chemicals was hit    
especially by the economic downturn, particularly in the United States.         
2001 operating income, including nonrecurring items, amounted to EUR 1,122      
million (2000: EUR 1,557 million).                                              

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                                                                              65

Financing Charges, net                                                          
Financing charges were somewhat higher than in 2000 due to higher short-term    
interest rates in the first half of 2001, the strong U.S. dollar and less       
capitalized interest, partially offset by the Company's lower debt level.       

Income Taxes                                                                    
The income tax charge for 2001 amounted to 32.5 percent, compared with 33.5     
percent in 2000, reflecting changes in the geographic distribution of the       
Company's results.                                                              

Earnings from Nonconsolidated Companies                                         
Earnings from nonconsolidated companies increased from EUR 65 million in 2000   
to EUR 69 million in 2001. Higher results for ECI Elektro-Chemie, the Brazilian 
Catalysts joint venture FCC, and Nippon Ketjen Company were partially offset by 
lower earnings of Methanor.                                                     

Minority Interest                                                               
Minority interest decreased by EUR 12 million, predominantly due to lower       
results of the consolidated Coatings joint ventures in Turkey.                  

Extraordinary and Nonrecurring Items                                            
The net nonrecurring loss of EUR 449 million for consolidated companies in 2001 
consisted of the following elements:                                            

                                                                [Download Table]


                                                          
----------------------------------------------------------
Millions of euros                                         
----------------------------------------------------------
Gains on divestments                                   26 
Pension premium refund Sweden                          19 
Asset impairments and restructurings at                   
- Chemicals                                          (257)
- Coatings                                           (201)
- Pharma                                              (36)

----------------------------------------------------------
Total                                                (449)
==========================================================

Asset impairments and restructurings at Coatings and Chemicals mainly related   
to the Company's major restructuring plans.                                     
Asset impairments were recognized for property, plant and equipment at various  
sites worldwide, certain intangible assets, and inventories.                    

The net nonrecurring after-tax loss for nonconsolidated companies in 2001       
mainly related to nonrecurring charges recognized for Acordis. In July 2001,    
the Company announced major restructuring programs for Coatings and Chemicals.  
The divestment of Diagnostics and Printing Inks resulted in a net extraordinary 
gain of EUR 63 million.                                                         

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66                                                                              

Sales and Operating Income by Activities                                        
For Akzo Nobel the change to the new millennium coincided with the most         
fundamental transformation in the Company's history. Fibers' exit in 1999       
drastically changed the composition and face of Akzo Nobel.                     

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----------------------------------------------------------------------------------------------------------------------------------- 
                                                 Net sales          Operating income       Nonrecurring*        Operating income,   
                                                                  before nonrecurring*        items            after nonrecurring*  
                                                                         items                                        items         
Millions of euros                              2001       2000      2001        2000      2001      2000         2001        2000   
------------------------------------------------------------------------------------------------------------------------------------
Pharma                                        4,044      3,839       831         765        41        (2)         790         767   
Coatings                                      5,591      5,568       426         447       200        13          226         434   
Chemicals                                     4,604      4,740       340         445       218        77          122         368   
Miscellaneous products, intragroup                                                                                                  
deliveries,                                                                                                                         
and eliminations                               (129)      (144)      (26)        (16)      (10)       (4)         (16)        (12)  
------------------------------------------------------------------------------------------------------------------------------------
Total                                        14,110     14,003     1,571       1,641       449        84        1,122       1,557   
====================================================================================================================================

*  Nonrecurring items relate to income and expenses resulting from normal       
business operations, which, because of their size or nature, are disclosed
separately to give a better understanding of the underlying result for the
period. These include items such as restructuring and impairment charges, 
 and significant gains and losses on the disposal of businesses, not meeting
the requirements for extraordinary items.                                 

Pharma                                                                          

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---------------------------------------------------------------------------------- 
                     Percentage                                         Percentage 
                    of net sales                                      of net sales 
Business unit               2001       Country of origin                      2001 
-----------------------------------------------------------------------------------
Organon                       61       The Netherlands                          28 
Intervet                      27       Germany                                   6 
Diosynth                      12       United Kingdom                            4 
                                       France                                    3 
                                       Other European countries                 24 
                                       USA and Canada                           21 
                                       Latin America                             7 
                                       Asia                                      6 
                                       Other regions                             1 
================================================================================== 

In 2001, Pharma's sales of EUR 4.0 billion increased 5 percent compared to      
2000. Acquisitions and divestments had a 4 percent negative influence. Volumes  
were up 9 percent while selling prices increased slightly by 2 percent.         
Currency translation effects had a 1 percent negative effect.                   

Pharma's operating income rose 9 percent to EUR 831 million in 2001 compared to 
2000, despite considerably higher marketing and R&D expenses to boost growth.   
All three business units turned in strong performances.                         

Organon's healthcare activities achieved 12 percent autonomous growth and       
distinctly higher results than in 2000. Remeron continued its very successful   
performance with 51 percent sales growth. Organon's sales in the United States  
were EUR 876 million, up 30 percent on previous year and accounted for more     
than one                                                                        

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                                                                              67

third of Organon's worldwide sales. Double-digit sales growth was achieved in   
most of the other key-countries.                                                

The animal healthcare activities continued their growth pattern with            
considerable sales gains and improved margins.                                  

Diosynth heavily invested in further organic growth, made a strategic           
acquisition (the U.S. biotech company CBSI) and placed strong emphasis on the   
U.S. market. As a result of these actions and boosted by the tendency of        
pharmaceutical innovators to outsource the production of active ingredients,    
2001 was a good year in terms of sales growth and profitability.                

Return on sales of Pharma in 2001 was 20.5 percent against 19.9 percent in      
2000. Return on investment amounted to 33.7 percent.                            

Coatings                                                                        

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--------------------------------------------------------------------------------------------
                                Percentage of                                  Percentage of
                                    net sales*                                     net sales
Business unit                            2001     Country of origin                     2001
--------------------------------------------------------------------------------------------
Decorative Coatings                         34    The Netherlands                          5
Industrial Coatings and Finishes            30    Germany                                  9
Marine & Protective Coatings                13    Sweden                                   6
Car Refinishes                              13    United Kingdom                          11
Industrial Products                         10    France                                   9
                                                  Other European countries                23
                                                  USA and Canada                          20
                                                  Latin America                            4
                                                  Asia                                     9
                                                  Other regions                            4
============================================================================================

* Ongoing activities                                                            

Despite increasing uncertainty and a significant deterioration of the business  
climate, first in the United States but later also in Europe, the previous      
year's sales level for Coatings of EUR 5.6 billion was maintained in 2001.      
Volumes decreased 2 percent, but selling prices were 3 percent higher. Negative 
currency translation effects were 2 percent, while acquisitions added 1         
percent. Coatings' operating income before nonrecurring items of EUR 426        
million was only 5 percent lower than 2000.                                     

On balance, results of Decorative Coatings were somewhat better in 2001 than in 
the previous year. Activities in Europe recovered, while the recession in       
Turkey continued to have a negative impact. Car Refinishes succeeded in growing 
sales and its profitability level in the face of deteriorating market           
conditions. The industrial Coatings activities felt the impact of the economic  
downturn in virtually all geographic markets, notably the United States and     
Europe. Marine & Protective Coatings again achieved substantial growth in sales 
and earnings, helped by the shipbuilding boom in Asia Pacific.                  
Return on sales dropped to 7.6 percent in 2001, against 8.0 percent in 2000.    
Return on investment in 2001 was 18.1 percent compared to 19.8 percent in 2000. 

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68                                                                              

Chemicals                                                                       

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-----------------------------------------------------------------------------------------
                                   Percentage                                  Percentage
                                 of net sales                                of net sales
Business unit                            2001        Country of origin               2001
-----------------------------------------------------------------------------------------
Pulp and Paper Chemicals                   21        The Netherlands                   25
Functional Chemicals                       16        Germany                            8
Surface Chemistry                          15        Sweden                            17
Polymer Chemicals                          12        UK                                 3
Base Chemicals                              7        Other European countries           7
Resins                                      9        USA and Canada                    29
Catalysts                                   8        Latin America                      4
Plastics and Processing Additives           4        Asia                               7
Salt                                        5                                            
Energy                                      3                                            
=========================================================================================

In 2001, the Chemical industry was impacted by recession, which started in the  
United States and later extended to Europe and Asia. The general trend toward   
globalization and concentration on core business created further customer       
consolidation and intensified competition. While we achieved an acceptable      
performance compared to our peers, we accelerated restructuring programs.       

Sales for the year of EUR 4.6 billion were 3 percent below the previous year.   
Volumes were down 3 percent, while prices increased 1 percent. Currency         
translation effects had a negative impact of 1 percent.                         

Operating income fell 24 percent to EUR 340 million. Pulp & Paper Chemicals     
maintained its market position and registered distinctly higher results. Salt   
also turned in a strong performance. Despite the economic slowdown, Surface     
Chemistry results came close to the record achieved in 2000. Base Chemicals'    
earnings were below the previous year's record, largely due to a planned major  
overhaul in its Rotterdam plant. Catalysts' results were lower, principally due 
to higher raw material and energy costs in the United States; however,          
performance improved in the second half of the year after the Los Angeles site  
was closed. Functional Chemicals had a very difficult year with much lower      
results. For Polymer Chemicals, four years of strong sales growth came to an    
abrupt halt at the end of 2000, causing 2001 earnings to be considerably lower  
than 2000. Resins and Plastics & Processing Additives also remained below their 
2000 earnings level.                                                            

Return on sales was 7.4 percent in 2001 (2000: 9.4 percent). Return on invested 
capital decreased from 15.2 percent in 2000 to 11.0 percent in 2001.            

Sales by nonconsolidated companies, on a 100 percent basis, totaled EUR 1.7     
billion.                                                                        

Chemicals' share in earnings of these companies was EUR 55 million, after       
taxes.                                                                          

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                                                                              69

Geographic Developments                                                         

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---------------------------------------------------------------------------------------------------------------------------------
                                          Net sales,          Net sales,                Operating income   Identifiable assets   
                                               by               by origin            before nonrecurring*                        
                                           destination                                       items                               

Millions of euros                     2001        2000          2001          2000       2001     2000        2001       2000    
---------------------------------------------------------------------------------------------------------------------------------
The Netherlands                        720         787         2,533         2,214        219      360       2,595      2,860    
Germany                              1,052       1,064         1,070         1,134         82       83         931      1,599    
Sweden                                 512         538         1,088         1,268         67       79         831        762    
United Kingdom                       1,036       1,052           924           966         38       55       1,365      1,198    
Other European countries             3,964       3,879         3,266         3,025        712      558       1,842      2,017    
USA and Canada                       3,802       3,596         3,263         3,198        190      237       3,090      2,324    
Latin America                          917         944           660           704        104       91         589        592    
Asia                                 1,429       1,466         1,039         1,132        113      122         859        865    
Other regions                          678         677           267           362         46       56         345        308    
Eliminations, cash and cash                                                                                                      
equivalents, and nonconsolidated                                                                                                 
companies, net                                                                                                 478        182    
-------------------------------------------------------------------------------------------------------------------------------  
Total                               14,110      14,003         14,110       14,003      1,571    1,641      12,925     12,707    
===============================================================================================================================  

*  Nonrecurring items relate to income and expenses resulting from normal       
business operations, which, because of their size or nature, are disclosed
separately to give a better understanding of the underlying result for the
period. These include items such as restructuring and impairment charges, 
 and significant gains and losses on the disposal of businesses, not meeting
the requirements for extraordinary items.                                 

In 2001, sales grew in the United States and Canada, while sales in other areas 
decreased.                                                                      
Operating income increased in other European countries and Latin America, while 
earnings in all other areas decreased.                                          
In the Netherlands, earnings for Pharma and Chemicals decreased significantly,  
while Coatings' earnings were slightly up. Lower Swedish results were mainly    
due to Coatings, while the lower United Kingdom earnings were mainly driven by  
Chemicals.                                                                      
The increased operating income in other countries was driven by an increase of  
Pharma earnings in Switzerland and Ireland as well as an increased operating    
income of Pharma and Coatings in France. As a result of the economic downturn,  
strengthened by the events of September 11, the United States results           
decreased, mainly in Chemicals, but also in Coatings and in Pharma.             
Despite lower earnings for Argentina and Brazil, results for Latin America      
increased due to Chemicals.                                                     
Asia earnings increased considerably in China, mainly Coatings, which was       
offset by a decrease of Pharma earnings in Japan.                               

LIQUIDITY AND CAPITAL RESOURCES                                                 

To Akzo Nobel's knowledge, and other than as disclosed herin, there are no      
trends or any demands, commitments, events or uncertainties that will result in 
or that are reasonably likely to result in a material change in Akzo Nobel's    
liquidity. As of the date of this Annual Report, Akzo Nobel has no material     
commitments for capital expenditures other than arising from the normal course  
of business, and other than as disclosed herin, and, to the knowledge of Akzo   
Nobel, there are no material trends, favorable or unfavorable, in Akzo Nobel's  
capital resources. Akzo Nobel believes that its capital resources and funds     
generated by operations will be sufficient to satisfy future capital            
expenditures and other commitments in connection with its ongoing business.     
Akzo Nobel may, however, utilize other sources of funding, from time            

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70                                                                              

to time, as and when appropriate. For refinancing part of our short-term        
borrowings and expiring long-term borrowings, early in May 2002 a EUR 1 billion 
bond loan was issued, maturing in 2009.                                         

Condensed Statement of Cash Flows                                               

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--------------------------------------------------------------------------------------------- 
Millions of euros                                                 2002       2001        2000 
--------------------------------------------------------------------------------------------- 
                                                                                              

Cash inflow from operations                                      1,431      1,578       1,734 
Working capital (decrease) / increase                              117       (141)       (367)
                                                                 -----      ------      ------
Net cash provided by operating activities                        1,548      1,437       1,367 

Investments in noncurrent assets                                  (749)      (910)       (762)
Net cash effect of acquisitions                                   (257)      (314)       (270)
Proceeds from divestments/redemptions                              227        478         441 
                                                                 -----      ------      ------
Net cash used in investing activities                             (779)      (746)       (591)

Cash dividends paid                                               (363)      (376)       (313)
Purchase of shares                                                  (6)       (10)            
Issuance of shares                                                   4          3           1 
Net (redemption) / increase of borrowings                         (290)      (265)       (984)
                                                                 -----      ------      ------
Net cash (used for) / generated by financing activities           (655)      (648)     (1,296)

Effect of exchange rate changes on cash and cash equivalents       (49)        (4)          4 
----------------------------------------------------------------------------------------------
Change in cash and cash equivalents                                 65         39        (516)
==============================================================================================

Net cash provided by operating activities amounted to EUR 1.5 billion in 2002,  
EUR 1.4 billion in 2001 and EUR 1.4 billion in 2000. Earnings in 2002 were      
higher as a result of lower provisions for restructurings and lower financing   
charges. Also better control over working capital had a positive effect on net  
cash provided by operations. However, this was partially offset by additional   
pension premiums paid as well as higher payments from provisions, as a result   
of the execution of restructuring programs.                                     

Net cash used in investing activities amounted to EUR 0.8 billion in 2002,      
EUR 0.8 billion in 2001 and EUR 0.6 billion in 2000. Acquisitions expenditures  
mainly concerned Ferro's powder coatings activities, Awlgrip(R) marine and      
aerospace coatings business, and Crompton's Industrial Specialties. Proceeds    
from divestments principally related to the sale of Rosemont Pharmaceuticals    
Ltd. and Printing Inks.                                                         
Net cash used for financing activities was principally the net effect of the    
EUR 1 billion public bond in May 2002 and the redemption of short-term          
borrowings. Of this bond, EUR 500 million was swapped into USD 445 million with 
floating LIBOR-related interest.                                                

During the year, the Company continued to use the money market, including the   
euro and U.S. commercial paper markets for short-term funding requirements.     

Akzo Nobel has a U.S. commercial paper program of USD 1.0 billion and a euro    
commercial paper program of EUR 1.5 billion. At December 31, 2002, borrowings   
under these commercial paper programs aggregated EUR 396 million. This short-   
term financing is supported by Akzo Nobel's existing credit facility of USD 1.0 
billion as well as its EUR 1.0 billion backup facility, both maturing in the    
fourth quarter of 2003. As at the end of 2002, these facilities were not used.  

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                                                                              71

At present the Company's long-term credit rating from Standard & Poors is A-    
with a short-term rating of A-2. The current long-term credit rating from       
Moody's is A3 and their short-term rating is P-2. All ratings mentioned have a  
so-called "negative outlook" to them.                                           

The present rating is 3 notches above the so-called high yield-zone. However,   
if the Company's rating due to whatever circumstances, would approach or enter  
the high-yield zone, this will not only result in increased financing cost for  
the Company but could also reduce availability of credit, especially at         
commercially acceptable rates.                                                  

It should be noted, however, that the Company's present loan documentation does 
not include any rating covenants.                                               

A security rating is not a reccommendation to buy, sell of hold securities. The 
rating may be subject to revision or withdrawal at any time by the rating       
organisation. Each rating should be valued independently of any other rating.   

At December 31, 2002, the Company had a cash position of EUR 0.5 billion.       

Equity went down EUR 0.8 billion, mainly the result of a EUR 1.1 billion after- 
tax minimum pension liability charge, while net interest-bearing borrowings     
decreased by EUR 0.8 billion as a consequence of our debt reduction program.    
Gearing* increased from 1.34 to 1.46. Interest coverage** improved from 6.1 in  
2001 to 7.3 in 2002.                                                            

* Net interest-bearing borrowings divided by equity                             
**Operating income before nonrecurring items divided by financing charges, net. 

Contractual obligations                                                         

The following table summarizes our principal contractual obligations at         
December 31, 2002.                                                              

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---------------------------------------------------------------------------------------------------
Contractual obligations                                     Payments due by period                 
Millions of euros                                                                                  
                                                                                                   

                                                           Less than       1-3       4-5    After 5
                                                  Total       1 year     years     years      years
---------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations*     2,797          734       299       110      1,654
Operating leases and other commitments              647          188       284        76         99
---------------------------------------------------------------------------------------------------
Total Contractual Obligations                     3,444          922       583       186      1,753
===================================================================================================

* of which capital leases total EUR 42 million.                                 

Other Commercial Commitments                                                    

Purchase commitments for property, plant and equipment aggregated EUR 127       
million at December 31, 2002. At December 31, 2001, these commitments totaled   
EUR 140 million. In addition, the Company has purchase commitments for raw      
materials and supplies incident to the ordinary conduct of business.            

Guarantees related to nonconsolidated companies totaled EUR 9 million (at       
December 31, 2001: EUR 11 million). As general partners in several              
partnerships, Akzo Nobel companies are liable for obligations                   

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72                                                                              

incurred by these partnerships. At December 31, 2002, the risk                  
ensuing from these liabilities was EUR 159 million (at December 31, 2001:       
EUR 156 million).                                                               

Certain Trading Activities                                                      

Although the Company hedges certain foreign currency, interest and raw material 
pricing exposures, it does not actively trade in derivative financial           
instruments. Furthermore, the Company does not hold any derivative financial    
instruments where fair values are determined other than on an active trading    
market.                                                                         

Off-Balance Sheet Transactions                                                  

Other than the activities in nonconsolidated joint ventures with other          
(industrial) partners, and operational leases of certain assets, the Company    
does not utilize special-purpose entities or engage in other off-balance sheet  
activities.                                                                     

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES                                  

Research and development spending amounted to EUR 790 million in 2000, EUR 847  
million in 2001, and EUR 912 million in 2002. The Company's research and        
development policies are specific to each of its three groups. For additional   
information regarding the Company's research and development policies for the   
last three years, see Item 4 "Information on the Company" under B. Business     
Overview.                                                                       

CRITICAL ACCOUNTING POLICIES                                                    

For the financial years up to and including 2002, Akzo Nobel has presented its  
financial statements on a basis consistent with generally accepted accounting   
principles in The Netherlands ("NL GAAP"). The preparation of Akzo Nobel's      
financial statements requires us to make estimates and judgments that affect    
the reported amounts of assets and liabilities, revenues and expenses, and      
related disclosure of contingent liabilities at the date of our financial       
statements. The policies that management considers to be most important to the  
presentation of Akzo Nobel's financial condition and results of operations and  
to require the most significant demands on management's judgments and estimates 
about matters that are inherently uncertain are discussed below. Management     
cautions that future events often vary from forecasts and that estimates        
routinely require adjustment.                                                   

Akzo Nobel believes that of its significant accounting policies (see Note 2 to  
the consolidated financial statements), the following may involve a higher      
degree of judgment and complexity, which in turn could materially affect net    
income and the balance sheet if various assumptions were changed significantly. 

A complete description of Akzo Nobel's accounting policies appears on pages 102 
through 105 of this Report - Summary of Significant Accounting Policies Used in 
Preparing the Consolidated Financial Statements ("Accounting Policies").        

Impairment                                                                      

The Company reviews long-lived assets for impairment when events or             
circumstances indicate carrying amounts may not be recoverable. Assets subject  
to this review include intangible and tangible fixed assets.                    

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                                                                              73

In determining impairments of intangible and tangible fixed assets, management  
must make significant judgments and estimates to determine if the undiscounted  
cash flows generated by those assets are less than their carrying value.        
Determining undiscounted cash flows requires the use of judgments and estimates 
that have been included in the Company's strategic plans and long-range         
planning forecasts. The data necessary for the execution of the impairment      
tests are based on management estimates of future cash flows, which require     
estimating revenue growth rates and profit margins. Assets (except for          
goodwill) are written down to their fair value when the undiscounted cash flows 
are less than the carrying value of the assets. The fair value of impaired      
assets is determined by taking into account these estimated cash flows and      
using a net present value technique based on discounting these cash flows with  
business specific discount rates. For goodwill the Company applies the          
provisions of SFAS 141 and 142. For further details reference is made to Item   
18 "Consolidated Financial Statements", Note 21(a).                             

Changes in assumptions and estimates included within the impairment reviews     
could result in significantly different earnings than those recorded in the     
financial statements.                                                           

Accounting for income taxes                                                     

As part of the process of preparing consolidated financial statements, the      
Company is required to estimate income taxes in each of the jurisdictions in    
which the Company operates. This process involves estimating actual current tax 
expense and temporary differences between tax and financial reporting.          
Temporary differences result in deferred tax assets and liabilities, which are  
included within the consolidated balance sheet. The Company must then assess    
the likelihood that deferred tax assets will be recovered from future taxable   
income. A valuation allowance is recognized to reduce deferred tax assets if,   
and to the extent, it is more likely than not that all or some portion of the   
deferred tax assets will not be realized.                                       

The Company has recorded a valuation allowance of EUR 65 million as of December 
31, 2002, based on estimates of taxable income by jurisdiction in which the     
Company operates and the period over which deferred tax assets are recoverable. 
In the event actual results differ from these estimates in future periods, and  
depending on the tax strategies that the Company may be able to implement,      
changes to the valuation allowance could be required, which could impact our    
financial position and results of operations.                                   

Provisions                                                                      

By their nature, provisions for contingent liabilities are dependent upon       
estimates and assessments of whether the criteria for recognition have been     
met, including estimates as to the probable outcome and the amount of the       
potential cost of resolution. Contingent liabilities are recognized by a charge 
against income when it is probable that a liability has been incurred and the   
amount of such liability can be reasonably estimated. The low end of the range  
is accrued for costs of future liabilities that may ultimately arise when such  
a range of possible loss is known.                                              

Contingent liabilities and provisioning for environmental matters, antitrust    
cases, other litigation (including Remeron(R) cases), and tax disputes are      
discussed in Note 14 - Commitments and Contingent Liabilities of the Notes to   
the Consolidated Financial Statements of Akzo Nobel. For provisions for         
environmental matters such estimates are based on the nature and seriousness of 
the contamination as well as on the technology required for cleanup. The        
provision for antitrust cases is based on an estimate of the probable costs,    
fines and civil damages, taking into account legal advice and the current facts 
and circumstances. Provisions for other litigation and tax disputes are also    
based on an estimate of the probable costs, taking into account legal advice    
and information currently available.                                            

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74                                                                              

Should the actual outcome differ from the assumptions and estimates, revisions  
to the estimated provisions would be required, which could impact our financial 
position and results of operations.                                             

Accounting for pensions and other postretirement benefits                       

Retirement benefits represent obligations that will be settled in the future    
and require assumptions to project benefit obligations and fair values of plan  
assets. Retirement benefit accounting is intended to reflect the recognition of 
future benefit costs over the employee's approximate service period, based on   
the terms of the plans and the investment and funding decisions made by the     
Company. The accounting requires management to make assumptions regarding       
variables such as discount rate, rate of compensation increase, return on       
assets, and future healthcare costs. Periodically management consults with      
outside actuaries regarding these assumptions. Changes in these key assumptions 
can have a significant impact on the projected benefit obligations, funding     
requirements and periodic cost incurred. The Company's policies and key         
assumptions are included Note 20 - Pensions and Postretirement Benefits other   
than Pensions of the Notes to the Consolidated Financial Statements of Akzo     
Nobel.                                                                          

NEW ACCOUNTING PRONOUNCEMENTS                                                   

In June 2001, Statement of Financial Accounting Standards No. 141, Business     
Combinations, (SFAS No. 141) and Statement of Financial Accounting Standards    
No. 142, Goodwill and Other Intangible Assets (SFAS No. 142) were issued. SFAS  
No. 141 requires that the purchase method of accounting be used for all         
business combinations. SFAS No. 141 specifies criteria that intangible assets   
acquired in a business combination must meet to be recognized and reported      
separately from goodwill. SFAS No. 142 will require that goodwill and           
intangible assets with indefinite useful lives no longer be amortized, but      
instead tested for impairment at least annually in accordance with the          
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets   
with estimable useful lives be amortized over their respective estimated useful 
lives to their estimated residual values, and reviewed for impairment in        
accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption. 

The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and SFAS 
No. 142 is effective January 1, 2002.                                           

Upon adoption of SFAS No. 142, the Company evaluated its existing intangible    
assets and goodwill that were acquired in purchase business combinations, and   
made necessary reclassifications in order to conform with the new               
classification criteria in SFAS No. 141 for recognition separate from goodwill. 
The Company reassessed the useful lives and residual values of all intangible   
assets acquired. The intangible assets with an indefinite useful life were      
tested for impairment in accordance with the provisions of SFAS No. 142. This   
did not lead to additional charges in the Company's statement of income.        

In June 2001, Statement of Financial Accounting Standards No. 143, Accounting   
for Asset Retirement Obligations (SFAS No. 143) was issued. SFAS No. 143        
requires the Company to record the fair value of an asset retirement obligation 
as a liability in the period in which it incurs a legal obligation associated   
with the retirement of tangible long-lived assets that result from the          
acquisition, construction, development, and/or normal use of the assets. The    
Company also records a corresponding asset that is depreciated over the life of 
the asset. Subsequent to the initial measurement of the asset retirement        
obligation, the obligation will be adjusted at the end of each period to        
reflect the passage of time and changes in the estimated future cash flows      
underlying the obligation. The Company is required to adopt SFAS No. 143 on     
January 1, 2003. The Company has not yet determined the impact of adopting SFAS 
No. 143.                                                                        

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                                                                              75

In April 2002, Statement of Financial Accounting Standards No. 145, Rescission  
of Statements of Financial Accounting Standards No. 4, 44 and 64, Amendment of  
Statement of Financial Accounting Standard No. 13, and Technical Corrections    
(SFAS No. 145) was issued. SFAS No. 145 amends existing guidance on reporting   
gains and losses on the extinguishment of debt to prohibit the classification   
of the gain or loss as extraordinary, as the use of such extinguishments have   
become part of the risk management strategy of many companies. SFAS No. 145     
also amends SFAS No. 13 to require sale-leaseback accounting for certain lease  
modifications that have economic effects similar to sale-leaseback              
transactions. The provisions of the Statement related to the rescission of      
Statement No. 4 is applied in fiscal years beginning after May 15, 2002.        
Earlier application of these provisions is encouraged. The provisions of the    
Statement related to Statement No. 13 were effective for transactions occurring 
after May 15, 2002, with early application encouraged. The adoption of SFAS No. 
145 is not expected to have a material effect on the Company's financial        
statements.                                                                     

In June 2002, Statement of Financial Accounting Standards No. 146, Accounting   
for Costs Associated with Exit or Disposal Activities (SFAS No. 146) was        
issued. SFAS No. 146 addresses financial accounting and reporting for costs     
associated with exit or disposal activities and nullifies Emerging Issues Task  
Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination 
Benefits and Other Costs to Exit an Activity. The provisions of this Statement  
are effective for exit or disposal activities that are initiated after December 
31, 2002, with early application encouraged. The Company will adopt SFAS No.    
146 as of January 1, 2003.                                                      

In November 2002, Interpretation No. 45, Guarantor's Accounting and Disclosure  
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to   
Others, an interpretation of Statements of Financial Accounting Standards No.   
5, 57 and 107 and a rescission of Statement of Financial Accounting Standards   
Interpretation No. 34 was issued. This Interpretation elaborates on the         
disclosures to be made by a guarantor in its interim and annual financial       
statements about its obligations under guarantees issued. The Interpretation    
also clarifies that a guarantor is required to recognize, at inception of a     
guarantee, a liability for the fair value of the obligation undertaken. The     
initial recognition and measurement provisions of the Interpretation are        
applicable to guarantees issued or modified after December 31, 2002 and are not 
expected to have a material effect on the Company's financial statements. The   
disclosure requirements are effective for financial statements of interim or    
annual periods ending after December 15, 2002, and are included in the notes to 
these consolidated financial statements.                                        

In December 2002, Statement of Financial Accounting Standards No. 148,          
Accounting for Stock-Based Compensation - Transition and Disclosure, an         
amendment of FASB Statement No. 123 (SFAS No. 148) was issued. This Statement   
amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to      
provide alternative methods of transition for a voluntary change to the fair    
value method of accounting for stock based employee compensation. In addition,  
this Statement amends the disclosure requirements of Statement No. 123 to       
require prominent disclosures in both annual and interim financial statements.  
Certain of the disclosure modifications are required for fiscal years ending    
after December 15, 2002 and are included in the notes to these consolidated     
financial statements.                                                           

In January 2003, the FASB issued Interpretation No. 46, Consolidation of        
Variable Interest Entities, an interpretation of ARB No. 51. This               
Interpretation addresses the consolidation by business enterprises of variable  
interest entities as defined in the Interpretation. The Interpretation applies  
immediately to variable interests in variable interest entities created after   
January 31, 2003, and to variable interests in variable interest entities       
obtained after January 31, 2003. For public enterprises, such as the Company,   
with a variable interest in a variable interest entity created before February  
1, 2003, the Interpretation is applied to the enterprise no later than the end  
of the first interim reporting period beginning after June 15, 2003. The        

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76                                                                              

application of this Interpretation is not expected to have a material effect on 
the Company's financial statements.                                             

FORWARD LOOKING STATEMENT ON 2003                                               

The business climate for 2003 is highly uncertain. Currencies will probably be  
negative for us, especially during the first six months of 2003, and pension    
charges will again go up. Furthermore, the Company will be confronted with      
generic competition for Remeron(R).                                             

We will continue to focus Company-wide on three critical priorities: Customers, 
Costs, and Cash. We will use our imagination to serve our customers better than 
our competitors.                                                                
Cost-cutting opportunities will be vigorously pursued; where needed, additional 
restructuring programs will be implemented. We will also continue our debt      
reduction program through strict cash discipline. Capital expenditures will be  
restricted to the order of magnitude of 2002. On top of that, we will continue  
to screen our activities and upgrade our portfolio based on value creation.     

Nevertheless, at present we have to assume that net income for 2003, excluding  
extraordinary and nonrecurring items, will be significantly below the level of  
2002.                                                                           

We plan to generate a financial surplus also in 2003 and therefore anticipate   
that no additional funds will have to be raised for ongoing operations.         
Excluding acquisitions and divestments, the number of employees is expected to  
decrease due to the implementation of restructuring programs at all groups.     

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                                                                              77

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                              

At each general meeting of shareholders at least one-fourth of the total of the 
membership of the Supervisory Board must resign. Such resignations are          
designated by the Supervisory Board on a rotating basis. A Supervisory Board    
member who resigns and is less than 70 years old is eligible for re-election.   
The number of members of the Supervisory Board or the Board of Management shall 
be determined by the general meeting of shareholders upon the proposal made by  
the meeting of the holders of priority shares. The members of the Supervisory   
Board and the Board of Management shall be appointed to and removed from office 
by the general meeting of shareholders. A resolution to remove a member of the  
Board of Management, other than by the proposal of the Supervisory Board, can   
only be adopted by two-thirds of the votes cast at the general meeting of the   
shareholders. Appointment of the members of the Supervisory Board and of the    
Board of Management shall be made from a binding list of at least two nominees  
for each vacancy to be filled. The nominees to fill any such vacancies shall be 
selected by the meeting of holders of priority shares within three months       
following the date on which the Board of Management by registered letter        
invites the holders of priority shares to do so. If the nominees have not been  
selected by the priority shareholders within such period, the general meeting   
of shareholders shall be free to nominate and appoint members to the            
Supervisory Board and the Board of Management. Nominees for any one vacancy may 
not at the same meeting be nominated to fill any other vacancy.                 

The Supervisory Board and the Board of Management shall each appoint its own    
secretary, which may be the same person.                                        

                                                        [Enlarge/Download Table]

                                                                                                    Served in such or     
Supervisory Board                                                                                 similar Supervisory     
(At March 31, 2003)    Principal Occupation                                                      Board capacity since     
---------------------------------------------------------------------------------------------------------------------     
                                                                                                                          
Aarnout A. Loudon           Former Chairman of the Board of Management of Akzo Nobel                                  1994
(1936, Dutch),              Chairman of the Supervisory Board of ABN AMRO Bank                                            
Chairman                    Member of the Supervisory Board of Royal Dutch Petroleum Company                              

Frits H. Fentener van       Managing Director of Flint Holding, the Netherlands                                       1984
Vlissingen                  Advisory Director of Unilever                                                                 
(1933, Dutch),              Deputy Chairman of the Supervisory Board of SHV Holdings, the Netherlands                     
Deputy Chairman             Chairman of the Supervisory Board of Draka, the Netherlands                                   
                            Member of the Supervisory Board of CSM, the Netherlands                                       

The Rt. Hon. Virginia       Former Secretary of State for Health and Member of the British Cabinet                    2000
Bottomley MP                Governor of the London School of Economics                                                    
(1948, British)             Partner of Odgers Ray & Berndtson                                                             

L. Paul Bremer, III         Former U.S. Ambassador to the Netherlands Chairman & CEO of Marsh Crisis                  1997
(1941, American)            Consulting                                                                                    
                            Nonexecutive Director of Air Products & Chemicals, Pennsylvania                               
                            Chairman of the U.S. National Commission on Terrorism                                         

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78                                                                              

                                                        [Enlarge/Download Table]

Abraham E. Cohen     Former Senior Vice President of Merck & Co and President of Merck Sharp & Dohme          1992
(1936, American)     International Chairman of Vascomedical, New York, and Neurobiological                        
                     Technologies, California Nonexecutive Director of Smith Barney (Mutual Funds),               
                     New York, and Teva Pharmaceutical Industries, Israel                                         
                                                                                                                  
Hilmar Kopper        Chairman of the Supervisory Board of DaimlerChrysler                                     1990
(1935, German)       Member of the Supervisory Board of Solvay                                                    
                     Advisory Director of Unilever                                                                
                     Nonexecutive Director of XEROX                                                               

Alain Merieux        Chairman of BioMerieux                                                                   2002
(1938, French)       Director of WENDEL Investissement, Eurazeo, Rue Imperiale de Lyon                            
                     Compagnie Plastic Omnium SA, and Lazard LLC                                                  

Lars H. Thunell      President and CEO of SEB Skandinaviska Enskilda Banken                                   1999
(1948, Swedish)      Member of the Board of Swedish Bankers Association                                           
                     Member of the Board of b-business partners B.V., the Netherlands                             
                     Member of the Board of the Swedish Industry and Commerce Stock Exchange Committee            
                     Chairman of the Board of IBX, Integrated Business                                            
                     Exchange AB                                                                                  

Maarten C. van Veen  Former CEO Koninklijke Hoogovens, the Netherlands                                        1997
(1935, Dutch)        Chairman of the Supervisory Board of Koninklijke Volker Wessels Stevin, the Netherlands      
                     Deputy Chairman of the Supervisory Board of ABN AMRO Bank                                    
                     Deputy Chairman of the Supervisory Board of Imtech, the Netherlands                          
                     Nonexecutive Director of Corus Group                                                         

Karel Vuursteen      Former CEO of Heineken, the Netherlands                                                  2002
(1941, Dutch)        Member of the Supervisory Boards of Gucci Group, Heineken Holding, ING Group,                
                     Koninklijke Ahold, and                                                                       
                     Randstad Holding, the Netherlands                                                            
                     Member of the Supervisory Board of Henkel, Germany                                           
                     Member of the Supervisory Board of Electrolux, Sweden                                        
                     Vice Chairman of Nyenrode University, the Netherlands                                        

Mr. Loudon, Mr. Fentener van Vlissingen, Mr. Bremer, III and Mr. Van Veen are   
the members of the Nomination and Remuneration Committee. The Audit Committee is
formed by Mr. Fentener van Vlissingen, Mr. Cohen,  Mr. Kopper and Mr. Thunell.  
The  Supervisory  Board has  determined,  that Mr.Thunell is an Audit Committee 
Financial Expert as defined in Section 10a (m)(3) of the Securities Exchange Act
of 1934.                                                                        

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                                                                              79

Activities                                                                      

During the year the Supervisory Board met five times. The September meeting was 
held in the United States when the new Organon headquarters were opened. The    
Board also had a meeting without the Board of Management being present. The     
Board was regularly informed through business reports, rolling forecasts,       
strategic and operational plans, and presentations by the Board of Management   
and it periodically consulted with the Board of Management on strategy,         
finance, and major actions.                                                     

Topics of discussion included:                                                  

- the Company's overall strategy                                                

- economic and market developments                                              

- Corporate Governance and compliance with the U.S. Sarbanes-Oxley Act of 2002  

- risks and risk management                                                     

- Human Resources policy                                                        

- pensions                                                                      

- the Company's financial structure                                             

- restructuring measures                                                        

- major investment projects, acquisitions, and divestments.                     

The Nomination and Remuneration Committee prepared proposals for nomination and 
reappointment to the Supervisory Board and the planning of succession within    
the Board of Management. Furthermore, the Committee made remuneration proposals 
for the members of the Board of Management, including the granting of stock     
options and other benefits, for approval by the Supervisory Board.              

The Audit Committee held consultations with the Chairman of the Board of        
Management, the Chief Financial Officer, and the external and internal auditors 
on such issues as accounting principles, internal control, administrative       
organization, and risk management. The Audit Committee verified the external    
auditors' independence, in particular with regard to nonauditing services       
rendered. In addition, the Committee prepared the proposal to the Supervisory   
Board for the succession of the lead audit partner in the context of the        
desirability of periodic transfer of responsibility. In January 2003, the draft 
2002 Financial Statements were extensively discussed with the Board of          
Management, the external auditors, and the internal auditors. At the            
recommendation of the Audit Committee the full Board approved the Financial     
Statements.                                                                     

Changes in the Supervisory Board                                                
At the General Meeting of Shareholders of April 24, 2002, membership of the     
Supervisory Board was raised by one and fixed at ten. Lo C. van Wachem, who had 
served on the Board for ten years, stepped down, as he had reached retirement   
age. The vacancies were filled by the appointment of Alain Merieux and Karel    
Vuursteen. Also at that meeting, L. Paul Bremer, III and Maarten C. van Veen    
stepped down as their terms of office were expiring. They were reappointed.     

At the General Meeting of Shareholders of April 17, 2003, Hilmar Kopper, who    
has served on the Board for thirteen years, stepped down as his term of office  
is expiring. Mr. Kopper was not available for reappointment.                    

Also at that meeting, it was approved that membership of the Supervisory Board  
be raised to eleven, and that Uwe-Ernst Bufe and Cees J.A. van Lede be          
appointed as members. Until 2000, Mr. Bufe (58) was chairman of the board of    
management of Degussa A.G.                                                      

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80                                                                              

                                                                [Download Table]

                                                                                    
------------------------------------------------------------------------------------
Board of Management                                                Served in such or
(At March 31, 2003)           Position with Company           similar capacity since
------------------------------------------------------------------------------------
Cees J.A. van Lede            Chairman                                          1991
(1942, Dutch)                                                                       

Fritz W. Froehlich            Deputy Chairman                                   1993
(1942, German)                                                                      

A.T.M. (Toon) Wilderbeek      Pharma                                            2002
(1950, Dutch)                                                                       

Rudy M.J. van der Meer        Coatings                                          1993
(1945, Dutch)                                                                       

Dag Stroemqvist               Chemicals                                         2000
(1942, Swedish)                                                                     

G.J. (Hans) Wijers                                                              2002
(1951, Dutch)                                                                       

------------------------------------------------------------------------------------
Secretary to the Supervisory Board and the Board of Management        Served in such
(At March 31, 2003)                                                   capacity since
------------------------------------------------------------------------------------
G.H. (Han) Jalink                                                               2002
(1949, Dutch)                                                                       

Changes in the Board of Management                                              
Effective May 1, 2003, Mr. van Lede will retire as Chairman of the Board of     
Management to be succeeded by Hans (G.J.) Wijers, who joined the Board on       
October 1, 2002. As from July 1, 2002, Mr. Wijers acted as advisor to the Board 
of Management.                                                                  

To provide for a gradual transition of management responsibilities, Dag         
Stroemqvist will postpone his retirement date beyond May 2004 to the end of     
that year, if so desired at that point in time.                                 

B. COMPENSATION                                                                 

Total Remuneration                                                              

Pursuant to the Dutch "Disclosure of Remuneration of Board Members Act," total  
remuneration and shares held by members of the Supervisory Board and the Board  
of Management is specified below.                                               
In 2002, the aggregate remuneration of the Supervisory Board and Board of       
Management was EUR 8.9 million. The aggregate amount set aside or accrued by    
the Company in 2002 to provide pension, retirement or similar benefits for      
those individuals was EUR 3.1 million.                                          

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                                                                              81

Supervisory Board                                                               

In respect of their functions the members of the Supervisory Board received the 
following remuneration:                                                         

                                                                [Download Table]

-------------------------------------------------------------------------------- 
In euros                                                          2002      2001 
-------------------------------------------------------------------------------- 
                                                                                 
Aarnout A. Loudon, Chairman (1)                                 52,000    52,000 
Frits H. Fentener van Vlissingen, Deputy Chairman (1)(2)        45,500    45,500 
Virginia Bottomley                                              41,000    41,000 
L. Paul Bremer, III (3)                                         42,100    41,000 
Abraham E. Cohen (2)                                            45,500    45,500 
Hilmar Kopper (2)                                               45,500    45,500 
Alain Merieux, from May 1, 2002                                 27,300           
Lars H. Thunell (2)                                             45,500    45,500 
Maarten C. van Veen (1)                                         45,500    45,500 
Karel Vuursteen, from May 1, 2002                               27,300           
Lo C. van Wachem (1), till May 1, 2002                          15,200    45,500 
-------------------------------------------------------------------------------- 
(1) Member of the Nomination and Remuneration Committee.                         
(2) Member of the Audit Committee.                                               
(3) From October 1, 2002, member of the Nomination and Remuneration Committee.   
-------------------------------------------------------------------------------- 

Board of Management                                                             

The service contracts of the members of the Board of Management are determined  
by the Supervisory Board, which has delegated this task to the Nomination and   
Remuneration Committee. The objective of the Company's remuneration policy is   
to provide remuneration in a form that will motivate and retain the members of  
the Board of Management as top executives of a major international company. In  
the determination and differentiation of the remuneration level of the          
Chairman, the Deputy Chairman, and the other members due allowance is made for  
the individual's specific responsibilities. Remuneration is differentiated on a 
basis comparable to that in other large international companies. To ensure that 
remuneration is linked to performance, members of the Board of Management are   
granted a variable remuneration component related to specific targets; as from  
the year 2000, this component is primarily dependent on the Economic Value      
Added realized.                                                                 

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82                                                                              

The salaries of the members of the Board of Management were increased by 4      
percent on April 1, 2002 (the previous adjustment was made on January 1, 2001). 
The members of the Board of Management received the following salaries,         
performance-related bonuses and other emoluments:                               

                                                                [Download Table]

--------------------------------------------------------------------------------
In euros                                                      2002   2001       
--------------------------------------------------------------------------------
                                                                                
Cees J.A. van Lede, Chairman                                                    
                                            Salary              623,100  605,000
                                            Bonus               377,200  447,700
                                            Other emoluments      5,600    5,700

Fritz W. Froehlich, Deputy Chairman                                             
                                            Salary              533,500  525,900
                                            Bonus               316,700  370,800
                                            Other emoluments      7,800    7,900

Rudy M.J. van der Meer                                                          
                                            Salary              445,000  432,000
                                            Bonus               261,400  303,800
                                            Other emoluments      5,600    5,700

Dag Stroemqvist                                                                 
                                            Salary              445,000  432,000
                                            Bonus               261,400  303,800
                                            Other emoluments      5,200    5,300

Paul K. Brons, till July 1, 2002                                                
                                            Salary              220,300  432,000
                                            Bonus               130,700  303,800
                                            Other emoluments      3,000    5,300

A.T.M. (Toon) Wilderbeek, from July 1, 2002                                     
                                            Salary              224,600         
                                            Bonus               127,800         
                                            Other emoluments      2,600         

G.J. (Hans) Wijers, from October 1, 2002                                        
                                            Salary              134,700         
                                            Bonus                76,600         
                                            Other emoluments      1,500         

--------------------------------------------------------------------------------


Pension Plan                                                                    
Different pension plans are provided for members of the Board of Management,    
based on the salaries and local customs and rules in the countries of origin.   
Members of the Board of Management normally retire in the year that they reach  
the age of 62.                                                                  

For the incumbent members on January 1, 2002, accrued pension benefits are      
based on length of service and membership of the Board of Management. As from   
January 1, 2002, the pension benefits for newly appointed members are based on  
an income- and age-related defined contribution plan, which duly takes account  
of the pension benefits accrued in the past. As a consequence, additional       
provisions were made in the amount of EUR 485,800 for Mr. Wijers and in the     
amount of EUR 584,600 for Mr. Wilderbeek.                                       

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                                                                              83

Besides the aforementioned provisions and after deduction of any contributions  
paid by the board members, pension expenses were as follows:                    

                                                                [Download Table]


--------------------------------------------------------------------------------
Euros                                                                           
--------------------------------------------------------------------------------
                                                                                

Cees J.A. van Lede                                                       455,900
Fritz W. Froehlich                                                       465,500
Rudy M.J. van der Meer                                                   402,700
Dag Stroemqvist                                                          277,100
Paul K. Brons                                                            118,500
A.T.M. (Toon) Wilderbeek                                                  47,500
G.J. (Hans) Wijers                                                        36,800
--------------------------------------------------------------------------------

Arrangements                                                                    

Effective July 1, 2002, Mr. Brons retired ten months before the retirement age  
of 62.                                                                          
Mr. van Lede will retire early on May 1, 2003. As a consequence, salary and     
pension provisions were made in the amount of EUR 448,400 at June 30, 2002, and 
in the amount of EUR 844,200 at December 31, 2002.                              

Of the allowance paid in 2000 to Mr. Stroemqvist in connection with his         
relocation from Sweden to the Netherlands, an amount of EUR 30,500 was charged  
to income in 2002.                                                              

Former Members of the Board of Management                                       
Charges relating to former members of the Board of Management amounted to EUR   
274,200, mainly due to pension expenses.                                        

Stock Options                                                                   
For a description of the option plan until 1998 and the revised option plan,    
reference is made to not 13 of the Notes of the Consolidated Financial          
Statement of Akzo Nobel. The conditional options granted in 2002 to members of  
the Board of Management have an exercise price of EUR 46.53 and the expiry date 
is April 25, 2012. After three years, the number of options granted can be      
decreased by a maximum percentage of 50, if specific performance criteria are   
not or not sufficiently met.                                                    

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84                                                                              

The aggregate number of options held by the members of the Board of Management  
is as follows:                                                                  

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------------------
                                Exercise       Outstanding                              Outstanding                     
                  Year of          price       at December     Granted    Exercised     at December               Expiry
                    issue         in EUR          31, 2001     in 2002      in 2002        31, 2002                 date

------------------------------------------------------------------------------------------------------------------------

                                                                                                                        
Cees J.A. van Lede   1997          28.10            11,592                   11,592                                     
                     1998          47.40            36,000                                   36,000      April 28, 2003 
                     1999          42.50            36,000                                   36,000      April 25, 2004 
                     2000          44.82            39,600                                   39,600      April 27, 2010 
                     2001          46.75            39,600                                   39,600      April 30, 2011 
                     2002          46.53                       39,600                        39,600      April 25, 2012 

Fritz W. Froehlich   1998          47.40            24,000                                   24,000      April 28, 2003 
                     1999          42.50            27,000                                   27,000      April 25, 2004 
                     2000          44.82            29,700                                   29,700      April 27, 2010 
                     2001          46.75            29,700                                   29,700      April 30, 2011 
                     2002          46.53                       29,700                        29,700      April 25, 2012 

Rudy M.J. van der                                                                                                       
Meer                 1997          28.10            10,060                   10,060                                     
                     1998          47.40            24,000                                   24,000      April 28, 2003 
                     1999          42.50            24,000                                   24,000      April 25, 2004 
                     2000          44.82            26,400                                   26,400      April 27, 2010 
                     2001          46.75            26,400                                   26,400      April 30, 2011 
                     2002          46.53                       26,400                        26,400      April 25, 2012 

Dag Stroemqvist      1998          47.40             6,000                                    6,000      April 28, 2003 
                     1999          42.50             6,000                                    6,000      April 25, 2004 
                     2000          44.82             3,300                                    3,300      April 27, 2005 
                     2000          44.82            13,200                                   13,200      April 27, 2010 
                     2001          46.75            26,400                                   26,400      April 30, 2011 
                     2002          46.53                       26,400                        26,400      April 25, 2012 

A.T.M. (Toon)        1998          47.40             4,400                                    4,400      April 28, 2003 
                     1999          42.50             4,500                                    4,500      April 25, 2004 
                     2000          44.82             6,600                                    6,600      April 27, 2005 
                     2001          46.75             6,600                                    6,600      April 30, 2006 
                     2002          46.53                        3,300                         3,300      April 25, 2009 
                     2002          46.53                       13,200                        13,200      April 25, 2012 

G.J. (Hans) Wijers   2002          46.53                       14,850                        14,850      April 25, 2012 

Paul K. Brons*       1997          28.10             5,060                    5,060                                     
                     1998          47.40            24,000                                   24,000      April 28, 2003 
                     1999          42.50            24,000                                   24,000      April 25, 2004 
                     2000          44.82            26,400                                   26,400      April 27, 2010 
                     2001          46.75            26,400                                   26,400      April 30, 2011 
                     2002          46.53                       26,400                        26,400      April 25, 2012 


* In early retirement per July 1, 2002                                          

All the options with an expiry date after the year 2004 are conditional         
options; the remainder is unconditional.                                        

C. BOARD PRACTICES                                                              

Reference is made to information under Item 6.A.                                

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                                                                              85

D. EMPLOYEES                                                                    

The tables below set forth the distribution of the number of employees per      
group and geographical area for the last three fiscal years.                    

                                                                [Download Table]


--------------------------------------------------------------------------------
                                   Number of employees per segment, December 31 
                                                                                
                                      2002               2001               2000
--------------------------------------------------------------------------------
Pharma                              21,800             21,100             21,000
Coatings                            29,800             28,900             30,300
Chemicals                           15,100             15,100             15,800
Other                                1,200              1,200              1,300
--------------------------------------------------------------------------------
Total                               67,900             66,300             68,400
================================================================================

The workforce expansion of 1,600 from acquisitions mainly related to Ferro's    
powder coatings activities, the German decorative coatings distributor Wuemeg,  
Crompton's Industrial Specialties, and ECI Elektro-Chemie.                      

In 2001, Coatings and Chemicals initiated restructuring programs for a          
workforce reduction of 3,500. In 2002, additional programs in all three groups  
were announced for a further reduction of 1,500. On top of that, the Company    
announced in 2003 additional plans for further global workforce reduction at    
Pharma of 500. So, in total the Company has workforce reduction plans of 5,500, 
of which 2,200 have been realized ultimo 2002.                                  
The Company expanded its workforce in those activities and regions where it is  
growing, like in Asia.                                                          

                                                                [Download Table]

--------------------------------------------------------------------------------
                         Number of employees by country or region, December 31, 
                                                                                
                                      2002               2001               2000
--------------------------------------------------------------------------------
The Netherlands                     13,000             12,700             12,800
Germany                              4,700              4,200              4,700
Sweden                               4,500              4,500              4,700
United Kingdom                       4,900              5,200              5,600
Other European countries            14,400             14,800             15,300
USA and Canada                      10,600             10,300             10,600
Latin America                        4,700              4,500              4,700
Asia                                 8,800              7,900              7,600
Other regions                        2,300              2,200              2,400
--------------------------------------------------------------------------------
Total                               67,900             66,300             68,400
================================================================================


The Company generally has good relationships with the labor unions.             

E. SHARE OWNERSHIP                                                              

Shares of Akzo Nobel N.V. held by the Members of the Supervisory Board and the  
Board of Management                                                             
At March 31, 2003, the members of Supervisory Board held 47,529 Akzo Nobel N.V. 
common shares and did not hold any other Akzo Nobel N.V. securities. The        
ownership breaks down as follows:                                               

                                                                [Download Table]

--------------------------------------------------------------------------------
Number of shares                                                                
--------------------------------------------------------------------------------
                                                                                
Frits H. Fentener van Vlissingen                                          42,332
L. Paul Bremer, III                                                          500
Abraham E. Cohen                                                           4,000
Maarten C. van Veen                                                          297
Karel Vuursteen                                                              400
--------------------------------------------------------------------------------

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86                                                                              

At March 31, 2003, the members of the Board of Management held 17,468 Akzo      
Nobel N.V. common shares. The ownership breaks down as follows:                 

                                                                [Download Table]

--------------------------------------------------------------------------------
Number of shares                                                                
                                                                                
--------------------------------------------------------------------------------
Cees J.A. van Lede                                                         5,500
Fritz W. Froehlich                                                         1,000
Rudy M.J. van der Meer                                                     1,168
Dag Stroemqvist                                                            8,200
G.J. (Hans) Wijers                                                         1,600
--------------------------------------------------------------------------------

Members of the Board of Management held no options other than the               
aforementioned stock options. All members of the Board of Management            
participate in the Akzo Nobel Employee Share Plan, whereby Akzo Nobel N.V.      
common shares are conditionally granted and vest after three years. In 2002, 5  
shares were granted (2001: 6 shares).                                           

No member of the Supervisory Board or the Board of Management beneficially owns 
more than 1 percent of Akzo Nobel N.V. common shares.                           

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                       

A. MAJOR SHAREHOLDERS                                                           

As required by the Disclosure of major Holdings in Listed Companies Act 1996,   
the Netherlands Authority for the Financial Markets announced in July 2002 that 
ING had acquired a position of 5 percent in Akzo Nobel common shares. ING does  
not have any different voting rights from the rights of other common            
shareholders.                                                                   

At year-end 2002, Akzo Nobel estimates that there were approximately 38 percent 
of its shares held in the United States, 20 percent in the Netherlands, 15      
percent in the United Kingdom, and 27 percent in other countries. About 9       
percent of the total number of shares were owned by private investors and 91    
percent by institutional investors.                                             

In February 1989, Akzo Nobel established a sponsored American Depositary        
Receipt facility with Morgan Guaranty Trust Company of New York, as depositary, 
pursuant to which American Depositary Receipts ("ADRs") representing American   
Depositary Shares ("ADSs") are issued. In October 1999, Akzo Nobel terminated   
its depositary arrangements with Morgan Guaranty Trust Company and appointed    
Citibank, N.A., as depositary for its ADR facility. In connection with the      
four-for-one stock split, which took effect on July 1, 1998, the ADSs were      
redenominated so that one ADS represents one Akzo Nobel common share (until     
July 1, 1998 each ADS represented one-half of a common share of Akzo Nobel).    
Akzo Nobel has been informed by the depositary that in the United States as of  
March 31, 2003, there were 35,193,970 sponsored ADSs (representing              
approximately 12 percent of the outstanding common shares) which were held by   
record holders.                                                                 

B. RELATED PARTY TRANSACTIONS                                                   

The nonconsolidated companies of Akzo Nobel N.V. are shown in Exhibit 8, to     
which reference is made. Certain nonconsolidated companies sell goods and       
provide services to consolidated Akzo Nobel companies. In addition,             
consolidated Akzo Nobel companies sell goods and provide services to certain    
nonconsolidated companies. Such transactions were not significant on an         
individual or aggregate basis. These transactions were generally conducted at   
arm's length with terms comparable to transactions with third parties.          

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                                                                              87

In the ordinary course of business the Company has transactions with various    
organizations with which certain of its members of the Supervisory Board or     
Board of Management are associated but no material transactions responsive to   
this item have been entered into in the period commencing January 1, 2002 to    
the date of this report.                                                        

C. INTEREST OF EXPERTS AND COUNSEL                                              

Not applicable.                                                                 

Item 8. FINANCIAL INFORMATION                                                   

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.                     

See Item 18 "Financial Statements" for the Consolidated Financial Statements of 
the Company.                                                                    

Legal Proceedings                                                               

Environmental Matters                                                           

The Company is subject to extensive European Union, national and local laws and 
regulations governing discharges to the air and water as well as the handling   
and disposal of solid and hazardous wastes. In addition, the Company is subject 
to regulatory requirements governing the remediation of environmental           
contamination associated with past releases of hazardous substances.            
Governmental authorities have the power to enforce compliance with these        
requirements, and violators may be subject to civil or criminal penalties,      
injunctions, or both. Third parties also may have the right to sue to enforce   
compliance. The Company is involved in (legal) proceedings with regulatory      
authorities in various countries that may require the Company to pay fines      
relating to violations of environmental laws and regulations, comply with more  
rigorous standards or other requirements, and incur capital and operating       
expenses to meet such obligations.                                              

The Company is subject to hazardous substance cleanup laws in various countries 
that impose liability for the costs of cleaning up contamination resulting from 
past spills, disposal or other releases of hazardous substances. In particular, 
the Company may be subject to liability under the United States Comprehensive   
Environmental Response, Compensation and Liability Act ("CERCLA" or             
"Superfund") and similar laws that impose liability-without a showing of fault, 
negligence or regulatory violation-on the generator of hazardous substances     
that have caused, or may cause, environmental contamination.                    

Pursuant to CERCLA, in certain circumstances, the United States Environmental   
Protection Agency ("EPA") may order one or more potentially responsible parties 
("PRPs") to clean up environmental contamination. In other cases, the EPA may   
clean up a site and then seek reimbursement of expenditures of federal funds    
from PRPs. Courts have interpreted CERCLA generally to impose joint and several 
liability without regard to fault for cleanup (and certain other) costs on all  
PRPs. This means that each PRP conceivably could be held liable for the entire  
amount of necessary cleanup costs. As a practical matter, however, liability is 
often apportioned among PRPs based on the volume and/or toxicity of the wastes  
disposed by each PRP.                                                           

It is the Company's policy to accrue and charge against earnings environmental  
cleanup costs when it is probable that a liability has been incurred and an     
amount is reasonably estimable. These accruals are reviewed periodically and    
adjusted, if necessary, as assessments and cleanups proceed and additional      
information becomes available. Environmental liabilities can change             
substantially by the emergence of additional information on the nature or       
extent of contamination, the necessity of employing particular methods of       

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88                                                                              

remediation, actions by governmental agencies or private parties, or other      
factors of a similar nature. Cash expenditures often lag behind the period in   
which an accrual is recorded by a number of years.                              

In accordance with the aforementioned policies, as of December 31, 2002, the    
aggregate environmental related long-term liabilities and accruals accounted    
for amounted to EUR 204 million (December 31, 2001: EUR 211 million).           

Although the Company believes that over the years it and its predecessors       
utilized operating practices that were standard in the relevant industry and    
were in compliance with existing environmental regulations, hazardous materials 
may have been released in or under currently or previously operated sites.      
Consequently, the Company may be required to remediate contamination at some of 
these sites. Although the Company does not have sufficient information to       
estimate its potential liability in connection with any potential future        
remediation, it believes that if any such remediation is required, it will      
occur over an extended period of time. The Company anticipates that there may   
be a need for future provisions for environmental costs which, in management's  
opinion based on information currently available, would not have a material     
adverse effect on the Company's financial position and liquidity, but could be  
materially adverse to the Company's results of operations in any one accounting 
period. Environmental liabilities can change substantially by the emergence of  
additional information on the nature or extent of contamination, the necessity  
of employing particular methods of remediation, actions by governmental         
agencies or private parties or other factors of a similar nature.               

While it is not feasible to predict the outcome of all pending environmental    
exposures, it is reasonably possible that there will be a need for future       
provisions for environmental costs which, in management's opinion based on      
information currently available, would not have a material effect on the        
Company's financial position but could be material to the Company's results of  
operations in any one accounting period.                                        

Antitrust Cases                                                                 

Akzo Nobel is involved in a number of investigations by the antitrust           
authorities in the United States, Canada, and the European Union into alleged   
violations of the respective antitrust laws for some products in these          
jurisdictions. In addition, the Company is involved in numerous civil damage    
claims in relation to some of these alleged antitrust violations. Fines, civil  
damage settlements, and legal costs incurred in 2002 in connection with these   
cases amounted to EUR 9 million. Based on an estimate of the probable fines,    
civil damages, and costs to be paid over a number of years to come - taking     
into account legal advice and the current facts and circumstances - at December 
31, 2002, the Company had a provision amounting to EUR 102 million.             

However, it should be understood, that in light of future developments such as  
- by way of example only - (a) the outcome of the investigations of the various 
antitrust authorities, (b) potential additional lawsuits by direct and/or       
indirect purchasers, (c) possible future civil settlements, (d) the failure to  
satisfy the conditions of any future class action settlement, and (e) adverse   
rulings or judgments in the pending investigations or in related civil suits,   
present and future antitrust matters could result in additional liabilities and 
related costs. The Company at this point in time cannot estimate any additional 
amount of loss or range of loss in excess of the recorded amounts with          
sufficient certainty to allow such amount or range of amounts to be meaningful. 
Moreover, the aforementioned liabilities are typically paid over a number of    
years and the timing of such payments cannot be predicted with confidence. The  
Company believes that the potential aggregate amount of any additional fines    
and civil damages to be paid will not materially affect the Company's financial 
position. The aggregate amount, however, could be material to the Company's     
results of operations in any one accounting period.                             

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                                                                              89

With regard to Flexsys, a 50/50 joint venture with Solutia Inc. for rubber      
chemicals, authorities in the USA, Canada and Europe are investigating past     
commercial practices in this industry. We have been informed by Flexsys         
management that it is fully cooperating with the authorities and will continue  
to do so. We are also aware of a number of purported class actions that have    
been filed against Flexsys in various courts in the United States, one of which 
is filed also against the joint venture parents.                                

Other Litigation (including Remeron(R) cases)                                   

The Company brought claims against certain generic drug manufacturers in the    
United States under the U.S. Hatch-Waxman Act, alleging infringement by such    
manufacturers of the Company's U.S. patent protecting the use of mirtazapine    
(Remeron(R)) in combination with one or more SSRI's for the treatment of        
depression. In two of the patent infringement cases brought by the Company, the 
Court granted summary judgment of noninfringement in favor of the defendants.   
In light of recent new case law in an unrelated case providing guidance         
regarding inducement to infringe issue under the Hatch-Waxman Act, the Company  
has decided not to further pursue any actions and to withdraw all pending cases 
based on infringement of the above reference patent against the generic drug    
manufacturers.                                                                  

Some generic drug manufacturers sued by the Company have brought antitrust      
counterclaims against the Company in the United States. In addition, antitrust  
claims have been filed against the Company in the United States on behalf of    
classes of (in)direct purchasers of Remeron(R). The Company is aggressively     
defending these claims.                                                         

There are pending against Akzo Nobel N.V. and its subsidiaries a number of      
other claims, all of which are contested. The Company is also involved in       
disputes with tax authorities in several jurisdictions.                         

While the outcome of these claims and disputes cannot be predicted with         
certainty, management believes, based upon legal advice and information         
received, that the final outcome will not materially affect the consolidated    
financial position but could be material to the Company's result of operations  
in any one accounting period.                                                   

Dividend Policy                                                                 

It is Akzo Nobel's intention to pay a dividend of 35 - 40 percent of (NL GAAP)  
net income excluding extraordinary and nonrecurring items, but this is subject  
to earnings, management's views on the business and allocation of capital, and  
so could change at any time.                                                    

B. SIGNIFICANT CHANGES                                                          

For developments in the Company's results during the first quarter of 2003,     
reference is made to Akzo Nobel's Report for the first Quarter of 2003          
furnished to the U.S. Securities and Exchange Commission on Form 6-K, File No.  
0-017444, on April 16, 2003, which is incorporated by reference herein.         

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90                                                                              

Item 9. THE OFFER AND LISTING                                                   

A. OFFER AND LISTING DETAILS                                                    

The tables below sets forth the high and low sales prices for Akzo Nobel common 
shares on the EURONEXT stock exchange in Amsterdam during the periods indicated 
and for the ADSs on NASDAQ/NMS. One ADS represents one Akzo Nobel common share. 

                                                                [Download Table]

--------------------------------------------------------------------------------
                               Amsterdam                      NASDAQ/NMS        
                                                                                
                              High     Low                 High        Low      
                           In euros per share            In U.S. dollars per ADS
--------------------------------------------------------------------------------
1997                         42.80   26.30                  47.38     31.81     
1998                         58.90   25.90                  63.69     31.56     
1999                         52.40   30.00                  52.25     33.63     
2000                         59.15   37.30                  54.00     36.50     
2001                         57.85   33.73                  54.50     31.00     
2002                         54.50   27.25                  47.30     27.56     

2001 1st quarter             57.85   44.26                  54.50     40.00     
     2nd quarter             51.65   44.65                  44.65     40.13     
     3rd quarter             49.99   33.73                  44.89     31.00     
     4th quarter             52.20   42.06                  45.74     38.92     
2002 1st quarter             54.50   47.60                  47.30     41.55     
     2nd quarter             53.70   41.40                  47.25     41.00     
     3rd quarter             46.53   31.20                  45.65     30.86     
     4th quarter             36.45   27.25                  34.20     27.56     

October 2002                 36.45   27.78                  34.20     27.56     
November 2002                31.84   27.25                  31.60     27.66     
December 2002                32.80   29.15                  32.41     29.81     
January 2003                 32.44   23.10                  33.42     25.21     
February 2003                25.50   18.17                  27.60     20.21     
March 2003                   20.70   16.00                  22.08     18.12     
--------------------------------------------------------------------------------

B. PLAN OF DISTRIBUTION                                                         

Not applicable.                                                                 

C. MARKETS                                                                      

As of December 31, 2002, the Akzo Nobel common shares were listed on the        
following stock exchanges:                                                      

The Netherlands; France; Belgium:  Euronext                                     
United States of America:          NASDAQ/NMS, as American Depositary Shares    

The EURONEXT stock exchange in Amsterdam is the principal trading market for    
Akzo Nobel common shares. In 2002, listings in London, Frankfurt, and Stockholm 
were terminated as the price of the Akzo Nobel share is predominantly set on    
Euronext Amsterdam. In 2003 the listing in Paris was terminated.                

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                                                                              91

D. SELLING SHAREHOLDERS                                                         

Not applicable.                                                                 

E. DILUTION                                                                     

Not applicable.                                                                 

F. EXPENSES OF THE ISSUE                                                        

Not applicable.                                                                 

Item 10. ADDITIONAL INFORMATION                                                 

A. SHARE CAPITAL.                                                               

Not applicable.                                                                 

B. MEMORANDUM AND ARTICLES OF ASSOCIATION.                                      

The following description sets out certain information concerning the Company's 
common shares, EUR 2 per share, and summarizes certain provisions of the        
Company's Articles of Association (the "Articles of Association") and the Dutch 
Civil Code*. This summary does not purport to be complete and is qualified in   
its entirety by reference to the Company's Articles of Association and the      
Dutch Civil Code.                                                               

The Company's authorized capital is EUR 1,600,019,200, which is divided into 48 
priority shares of EUR 400 each, 600,000,000 Common shares of EUR 2 each, and   
200,000,000 cumulative preferred shares of EUR 2 each, divided into fifty       
series numbered 1 through 50 of 4,000,000 shares each. As of December 31, 2002, 
48 priority shares and 286,147,260 common shares were issued and fully paid up. 

Principal Objects                                                               
Article 3 of the Company's Articles of Association provides that its objects    
include participation directly or indirectly in partnerships, companies and     
other legal entities, and to do all such things necessary to manage and finance 
such entities, including the holding and administering of patents and other     
intellectual property rights.                                                   

General                                                                         
All of the issued and outstanding common shares are fully paid and              
nonassessable. Common shares are registered shares or bearer shares, at the     
option of the shareholder concerned. Registered shares may be Model I shares    
(no share certificate issued) or Model II shares (share certificate issued      
without a dividend sheet). A shareholder may also elect to replace Model I      
shares with Model II shares, and vice versa, subject to any minimum number of   
shares established by the Board of Management. Model I registered shares may be 
transferred by delivery to the Company of a signed deed of transfer in the form 
made available by the Company. Model II registered shares may be transferred by 
delivery of the certificate for such shares, if the form on its reverse, of a   
similar instrument accompanying the certificate, has been signed by the         
transferor.                                                                     

* All references to the Articles of Association and the Dutch Civil Code are    
based upon English translations of such documents and are qualified by the      
original Dutch provisions.                                                      

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92                                                                              

Voting Rights                                                                   
The number of members of both the Supervisory Board and the Board of Management 
is determined by the General Meeting of Shareholders on the proposal of the     
meeting of the holders of priority shares. The members of both Boards are       
appointed and removed from office by the General Meeting of Shareholders. The   
holders of priority shares have the exclusive right to draw up binding lists of 
nominees for appointment to the Supervisory Board and the Board of Management   
of the Company. At least two persons must be nominated for each vacancy. If     
less than half the subscribed capital is present, a two-thirds majority of the  
votes cast is required in order for the General Meeting of Shareholders to      
adopt a resolution to remove a member of the Supervisory Board, unless such     
removal is proposed by the Supervisory Board itself. A two-thirds majority of   
the votes cast is required for a resolution to remove a member of the Board of  
Management, unless proposed by the Supervisory Board.                           

At shareholders' meetings each cumulative preferred share and each common share 
is entitled to one vote. Each priority share is entitled to two hundred votes.  
Attendance, whether by person or by proxy, for purposes of having the right to  
vote at a general meeting is decided upon by the chairman of the general        
meeting in accordance with the Articles of Association. Proposals may be        
submitted by one or more persons entitled to attend shareholders' meetings and  
vote thereat who alone or jointly represent at least one one-hundredth of the   
total issued capital. Such a proposal may be rejected by the Board of           
Management if it judges it to be not in the Company's interest. Unless the      
Articles of Association stipulate otherwise, all resolutions of the general     
meeting must be approved by a majority of the votes cast. The chairman of the   
meeting shall decide the manner of voting, including the possibility of voting  
by acclamation.                                                                 

Proposals to amend the Articles of Association and dissolve the Company require 
approval of the meeting of the holders of priority shares. Amendment to the     
Articles of Association altering the special rights of the holders of preferred 
shares must be approved at a meeting of the holders of those shares. Before the 
General Meeting of Shareholders may alter the special rights of holders of      
priority shares, a proposal to that effect must be approved by the vote of at   
least three-fourths of the outstanding priority shares.                         

Dividends                                                                       
Subject to the provisions of the Dutch Civil Code, with the approval of the     
Supervisory Board, the Board of Management may make a payment of an interim     
dividend if the profits so permit. The profits are allocated first to the       
preferred shares in the manner described in Article 43 of the Articles of       
Association. The Board of Management may then determine, with the approval of   
the Supervisory Board, the portion of the profits that should be added to       
capital reserves. The remaining profits, if any, are distributed to the         
priority shares (up to EUR 24 per share) and then equally to the common shares, 
all in conformity with Article 43 of the Articles of Association. Article 105   
of Book 2 of the Dutch Civil Code provides that distribution of profits to      
shareholders may be made only to the extent that shareholders' equity exceeds   
the sum of the amount of the paid and the called up part of the capital and the 
reserves which must be maintained under the law or Articles of Association.     
Under Dutch law, a company may make interim distributions if it demonstrates    
that it has fulfilled the above requirement by providing an interim statement   
of assets and liabilities on a date no earlier than the first day of the third  
month preceding the month in which the resolution to make a distribution is     
published.                                                                      

Liquidation Rights                                                              
Upon liquidation of the Company, the assets remaining after payment of all      
debts and of the liquidation costs will be distributed as follows:              
-  first to the holders of preferred shares in the amount of the par value
of his shares plus the excess over par paid at the time of issue, in
    addition to the amount of any shortfall in distributions as described in
   Article 43 of the Articles of Association plus a prorated amount of the
     annual distribution calculated in the manner described in paragraph (iii)
of Article 58 of the Articles of Association;                       

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-  next, to the extent possible, the holders of priority shares will receive
the aggregate par value amount of their shares;                       
-  next, the holders of common shares will be repaid the par value of their 
shares; and                                                           
-  next, accrued and unpaid dividends, if any, shall be paid on the priority
shares.                                                               
Any balance remaining thereafter shall be distributed among the holders of      
common shares, pro rata to the number of shares held by each of them.           

Preemptive Rights                                                               
The Company may only issue authorized shares in accordance with a proposal of   
the Board of Management and only after the General Meeting of Shareholders has  
adopted a resolution to issue such shares or granted to the Board of Management 
a general empowerment of a duration not greater than five years to issue such   
shares. Such a resolution or empowerment is valid only if it has been approved  
by every group of holders of shares of the same class whose rights the issue    
will adversely affect. The Company may not issue shares without the approval of 
the Supervisory Board. Generally, subject to certain limitations and            
qualifications, Article 96 (a) of Book 2 of the Dutch Civil Code provides each  
shareholder a preemptive right to acquire any issue of shares pro rata to the   
aggregate amount of his shares. Under the Dutch Civil Code and Article 5 of the 
Articles of Association, such preemptive rights may be restricted of excluded by
a resolution of the General Meeting of Shareholders.                            

Capital Reduction                                                               
The General Meeting of Shareholders may, upon the proposal of the Board of      
Management which has been duly approved by the Supervisory Board, resolve to    
reduce the issued capital of the Company by canceling shares or by reducing the 
par value of shares by means of amendment of the Articles of Association.       
Partial repayment may be made for all shares or exclusively for common shares,  
preferred shares or any series of preferred shares.                             

C. MATERIAL CONTRACTS.                                                          

The Company has not entered into any material contracts (others than those      
entered into in the ordinary course of business) in the past two years. For a   
description of significant acquisitions and divestments in 2002, 2001 and 2000  
reference is made to note 2 of the Notes to the Consolidated Financial          
Statements in Item 18 "Financial Statements".                                   

D. EXCHANGE CONTROLS                                                            

There are no legislative or other legal provisions currently in force in the    
Netherlands or arising under the Articles of Association restricting remittance 
to holders of securities of the Company not resident in the Netherlands. Cash   
dividends payable in euros on the securities of the Company may be officially   
transferred from the Netherlands and converted into any other convertible       
currency.                                                                       

There are no limitations, either by the laws of the Netherlands or in the       
Articles of Association, which affect the rights of non-resident or foreign     
owners to hold or vote Akzo Nobel common shares.                                

E. TAXATION                                                                     

Netherlands Taxation                                                            

The statements below only represent a broad overview of the present Netherlands 
tax laws and the present United States/Netherlands Tax Convention (the "Tax     
Treaty") applicable to holding and disposing shares of Akzo Nobel, which are    
both subject to change and are not to be read as extending by implication to    
matters not specifically referred to herein.                                    

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94                                                                              

As to individual tax consequences, each investor in the common shares should    
consult his own tax advisor.                                                    

Withholding Tax                                                                 

In general, a dividend distributed by a company resident in the Netherlands     
(such as Akzo Nobel) is subject to a withholding tax imposed by the Netherlands 
at a rate of 25 percent. Stock dividends paid out of the Company's additional   
paid-in capital recognized for Netherlands tax purposes are not subject to the  
above withholding tax.                                                          

Pursuant to the provisions of the tax treaty between the United States of       
America and the Netherlands (the "Tax Treaty"), dividends paid by the Company   
to a shareholder that is a resident of the United States (as defined in the US  
Tax Treaty), are generally eligible for a reduction in the rate of Netherlands  
withholding tax to 15 percent unless (I) the beneficial owner of the dividends  
carries on business in the Netherlands through a permanent establishment, or    
performs independent personal services in the Netherlands from a fixed base,    
and the common shares form part of the business property of such permanent      
establishment or pertain to such fixed base, or (II) the beneficial owner of    
the dividends is not entitled to the benefits of the Tax Treaty under the       
"treaty-shopping" provisions thereof. Dividends paid to qualifying exempt US    
pension trusts and certain qualifying exempt US organizations are exempt from   
Netherlands withholding tax under the US Tax Treaty.                            

Capital Gains                                                                   

Capital gains realized upon the sale or exchange of common shares by a non-     
resident individual or by a non-resident corporation of the Netherlands are     
exempt from Netherlands income tax, corporation tax or withholding tax, unless  
(I) such gains are effectively connected with a permanent establishment in the  
Netherlands of the shareholder's trade or business or (II) are derived from a   
direct, indirect or deemed substantial holding of common shares of such company 
(such substantial holding not being a business asset).                          

In general, an individual has a substantial holding if he holds either directly 
or indirectly and either independently or jointly with his spouse, at least 5   
percent of the nominal paid-up capital of any class of shares in a company.     

Under the Tax Treaty, however, the Netherlands may tax a capital gain derived   
from a substantial holding only if the alienator has been a resident of the     
Netherlands at any time during the five-year period preceding the alienation    
and at the time of the alienation owns, either alone or together with family-   
related individuals, at least 25 percent of any class of shares of such         
company.                                                                        

Estate and Gift Taxes                                                           

No estate, inheritance or gift taxes are imposed by the Netherlands on the      
transfer of common shares if, at the time of the death of the shareholder or    
the transfer of the common shares (as the case may be), such shareholder or     
transferor is not a resident of the Netherlands, unless such common shares are  
attributable to a permanent establishment or permanent representative of the    
shareholder in the Netherlands.                                                 

Inheritance or gift taxes (as the case may be) are due, however, if such        
shareholder or transferor:                                                      
(a)  has Netherlands nationality and has been a resident of the Netherlands at  
    any time during the ten years preceding the time of the death or transfer,
or                                                                    
(b)  has no Netherlands nationality but has been a resident of the Netherlands  
  at any time during the twelve months preceding the time of transfer (for
Netherlands gift taxes only).                                         

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                                                                              95

United States Taxation                                                          

This section describes the material United States federal income tax            
consequences of owning shares or ADSs. It applies to you only if you hold your  
shares or ADSs as capital assets for tax purposes. This section does not apply  
to you in all respects if you are a member of a special class of holders        
subject to special rules, including:                                            

-    a dealer in securities,                                                    

-    a trader in securities that elects to use a mark-to-market method of       
accounting for your securities holdings,                              

-    a tax-exempt organization,                                                 

-    a life insurance company,                                                  

-    a person liable for alternative minimum tax,                               

-    a person that actually or constructively owns 10 percent or more of the    
voting stock of Akzo Nobel,                                           

-    a person that holds shares or ADSs as part of a straddle or a hedging or   
conversion transaction, or                                            

-    a person whose functional currency is not the U.S. dollar.                 

This section is based on the Internal Revenue Code of 1986, as amended, its     
legislative history, existing and proposed regulations, published rulings and   
court decisions, all as currently in effect, as well as on the income tax       
treaty between the United States of America and the Netherlands (the "Tax       
Treaty"). These laws are subject to change, possibly on a retroactive basis. In 
addition, this section is based in part upon the representations of the         
Depositary and the assumption that each obligation in the Deposit Agreement and 
any related agreement will be performed in accordance with its terms.           

You are a U.S. holder if you are a beneficial owner of shares or ADSs, and you  
are:                                                                            

-    a citizen or resident of the United States,                                

-    a domestic corporation,                                                    

-    an estate whose income is subject to United States federal income tax      
regardless of its source, or                                          

-    a trust if a United States court can exercise primary supervision over the 
     trust's administration and one or more United States persons are authorized
to control all substantial decisions of the trust.                    

--------------------------------------------------------------------------------
You should consult your own tax advisor regarding the United States federal,    
state and local, and Dutch and other tax consequences of owning and disposing   
of shares and ADSs in your particular circumstances.                            
--------------------------------------------------------------------------------

In general, and taking into account the earlier assumptions, for United States  
federal income tax purposes, if you hold ADRs evidencing ADSs, you will be      
treated as the owner of the shares represented by those ADSs. Exchanges of      
shares for ADSs, and ADSs for shares, generally will not be subject to United   
States federal income tax.                                                      

Taxation of Dividends                                                           

Under the United States federal income tax laws, if you are a U.S. holder, you  
must include in your gross income the gross amount of any dividend paid by Akzo 
Nobel out of its current or accumulated earnings and profits (as determined for 
United States federal income tax purposes). You must include any Netherlands    
tax withheld from the dividend payment in this gross amount even though you do  
not in fact receive it. The dividend is ordinary income that you must include   
in income when you, in the case of shares, or the Depository, in the case of    
ADSs, receive the dividend, actually or constructively. The dividend will not   
be eligible for the dividends-received deduction generally allowed to United    
States corporations in respect of dividends received from other                 

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96                                                                              

United States corporations. Distributions in excess of current and accumulated  
earnings and profits, as determined for United States federal income tax        
purposes, will be treated as a non-taxable return of capital to the extent of   
your basis in the shares or ADSs and thereafter as capital gain.                

Subject to certain limitations, the Netherlands tax withheld in accordance with 
the Tax Treaty and paid over to the Netherlands will be creditable against your 
United States federal income tax liability. Under a provision of the            
Netherlands dividend tax act Akzo Nobel will apply a credit against the amount  
of the dividend tax withheld before remittance to the Netherlands tax           
authorities. This credit is the lesser of:                                      
- 3 percent of the part of the gross dividend from which dividend tax is        
withheld, and                                                                   
- 3 percent of the gross amount of dividends received from qualifying non-      
Netherlands subsidiaries.                                                       
Because of this credit, the US tax authorities may take the view that the       
Netherlands withholding tax eligible for credit against United States Federal   
income taxes should be limited accordingly.                                     

Dividends will be income from sources outside the United States, but generally  
will be "passive income" or "financial services income" which is treated        
separately from other types of income for purposes of computing the foreign tax 
credit allowable to you.                                                        

Taxation of Capital Gains                                                       

If you are a U.S. holder and you sell or otherwise dispose of your shares or    
ADSs, you will recognize capital gain or loss for United States federal income  
tax purposes equal to the difference between the U.S. dollar value of the       
amount that you realize and your tax basis, determined in U.S. dollars, in your 
shares or ADSs. Capital gain of a noncorporate U.S. holder is generally taxed   
at a maximum rate of 20 percent where the property is held for more than one    
year. The gain or loss will generally be income or loss from sources within the 
United States for foreign tax credit limitation purposes.                       

F. DIVIDENDS AND PAYING AGENTS                                                  

Not applicable.                                                                 

G. STATEMENT BY EXPERTS                                                         

Not applicable.                                                                 

H. DOCUMENTS ON DISPLAY                                                         

The documents that are exhibits to or incorporated by reference in this Annual  
Report can be read at the U.S. Securities and Exchange Commission's public      
reference facilities at room 1024, 450 Fifth Street, NW, Washington, D.C.       
20549. Please call the SEC at 1-800-SEC-0330 for further information on the     
public reference rooms and their copy charges. The Company's filings since      
November 4, 2002, are also publicly available through the SEC's website located 
at http://www.sec.gov.                                                          

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Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK             

Foreign Currency Exchange Risk Management                                       

Akzo Nobel has operations in more than 80 countries and, as a result, is        
exposed to changes in foreign currency exchange rates. The Company manages most 
of these exposures on a consolidated basis, which allows netting certain        
exposures to take advantage of any natural offsets. To the extent the Company   
enters into forward exchange contracts to hedge transaction exposures, these    
principally arise with respect to assets and liabilities or firm commitments    
related to sales and purchases. The purpose of Akzo Nobel's foreign currency    
hedging activities is to protect the Company from the risk that the eventual    
functional currency net cash flows resulting from trade transactions would be   
adversely affected by changes in exchange rates.                                

At December 31, 2002, the following contracts to buy and sell currencies were   
outstanding, all having maturities within one year:                             

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------- 
Currency                 Buy contracts    Sell contracts    Mark to market    Mark to market 
                                                                     value             value 
Millions of euros                                            buy contracts*   sell contracts*
-------------------------------------------------------------------------------------------- 
                                                                                             
U.S. dollar                        212             1,433            (19.8)             142.0 
Canadian dollar                    366               163            (10.6)               3.9 
Pound sterling                     169               118             (4.4)               2.3 
Swedish krona                       84               167             (0.8)               1.4 
Japanese yen                         7               142             (0.8)               0.8 
Swiss franc                         53                 3              0.4                  - 
Australian dollar                   15                11             (1.3)               0.4 
Norwegian krone                     17                27             (1.0)               0.4 
Danish krone                         2                18                -                  - 
Other                               31                32             (1.1)               1.5 
-------------------------------------------------------------------------------------------- 
Total                              956             2,114            (39.4)             152.7 
============================================================================================ 

*     Asset/(Liability)                                                         

The table below summarizes information on instruments and transactions that are 
sensitive to foreign currency exchange rates. For debt obligations, the table   
presents principal cash flows and related weighted average interest rates by    
expected maturity dates.                                                        

                                                        [Enlarge/Download Table]



----------------------------------------------------------------------------------------------------------
Financial Instruments (Balance Sheet)                                                                     
                                                                                                          
                                                  Expected maturity date                                  
Millions of euros           2003        2004    2005        2006    2007   Thereafter   Total   Fair value
----------------------------------------------------------------------------------------------------------
Long-term borrowings (USD)   544                                     100          157     801          842
Average interest rate %     6.04                                    6.44         6.48    6.19             


The Company does not use financial instruments to hedge the translation risk    
related to equity and earnings of foreign subsidiaries and nonconsolidated      
companies.                                                                      

Interest Rate Risk Management                                                   

In principle, the Company manages interest rate risk by financing noncurrent    
assets and a certain portion of current assets with equity, long-term           
liabilities and long-term borrowings with fixed interest rates. The             

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98                                                                              

remainder of current assets is financed with short-term liabilities, including  
floating rate short-term borrowings. In line with this policy, a number of      
interest rate swap contracts have been entered into.                            

The table below provides information about the Company's financial instruments  
that are sensitive to changes in interest rates. For debt obligations the table 
presents principal cash flows and related weighted average interest rates by    
expected maturity dates. For interest rate swaps and interest rate caps, the    
table presents notional amounts and weighted average interest rates by expected 
maturity dates.                                                                 

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------------------- 
                                             Expected maturity date                                                 
                                                                                                                    
Millions of euros                   2003       2004        2005      2006   2007   Thereafter    Total   Fair value 
------------------------------------------------------------------------------------------------------------------- 
Liabilities                                                                                                         
Long term borrowings                                                                                                
  Fixed Rate (EUR)                                                                                                  

    Bond loan 93/03                  136                                                           136          139 
    Average interest rate %         6.38                                                          6.38              

    Bond loan 95/05                                         227                                    227          245 
    Average interest rate %                                7.00                                   7.00              

    Bond loan 02/09                                                                     1,000    1,000        1,064 
    Average interest rate %                                                              5.63     5.63              

  Fixed Rate (GBP swapped                                                                                           
  to EUR)                                                                                                           

    Bond loan 93/03                    7                                                             7            7 
    Average interest rate %         7.60                                                          7.60              

  Fixed Rate (EUR)                                                                                                  

    Bond loan 98/08                                                                       512      512          534 
    Average interest rate %                                                              5.38     5.38              

  Fixed Rate (USD)                                                                                                  

    Bond loan 98/03                  478

Akzo Nobel NV · 20-F · For 12/31/02

Filed On 4/22/03 10:43am ET · SEC File 0-17444 · Accession Number 1208646-3-72

Annual Report of a Foreign Private Issuer · Form 20-FFiling Table of Contents

20-F · Akzo Nobel 20fDocument Table of Contents

Annual Report of a Foreign Private Issuer · Form 20-F
Filing Table of Contents

20-F · Akzo Nobel 20f
Document Table of Contents