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SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
  20549

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FORM 20-F (Mark
    one) (  )
      
      REGISTRATION
          STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES EXCHANGEACT
          OF 1934or(X)
      ANNUAL
          REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
          ACT OF 1934For
          the fiscal year ended December 31, 2004or(  )
      
      TRANSITION
          REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
          OF1934Commission
          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


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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
      286,147,260Priority
        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 | No
|--- | --

Indicate
  by check mark which financial statement itm the reistered has elected to follw.

|Item
        17 | Item
        18
|--------------- | ---------------

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1

Akzo
  Nobel N.V.

TABLE
  OF CONTENTS

|                |                                                                                    | 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                                                   | 16  
|Item
      5    | Operating
      and financial review and prospects                                 | 55  
|Item
      6    | Directors,
      senior management and employees                                   | 82  
|Item
      7    | Major
      shareholders and related party transactions                            | 102 
|Item
      8    | Financial
      information                                                        | 103 
|Item
      9    | The
      offer and listing                                                        | 107 
|Item
      10   | Additional
      information                                                       | 109 
|Item
      11   | Quantitative
      and qualitative disclosure about market risk                    | 119 
|Item
      12   | Description
      of securities other than equity securities                       | 122 
|                |                                                                                    |     
|PART II         |                                                                                    |     
|Item
      13   | Defaults,
      dividend arreages and delinquencies                                | 122 
|Item
      14   | Material
      modifications to the rights of security holders and use of proceeds | 122 
|Item
      15   | Disclosure
      Controls and Procedures                                           | 122 
|Item
      16.A | Audit
      Committee Financial Expert                                             | 123 
|Item
      16.B | Code
      of Ethics                                                               | 123 
|Item
      16.C | Principal
      Accountant Fee and Services                                        | 123 
|Item
      16.E | Purchases
      of Equity Securities by the Issuer and Affiliated Purchasers       | 124 
|                |                                                                                    |     
|PART III        |                                                                                    |     
|Item
      17   | Financial
      statements                                                         | 124 
|Item
      18   | Financial
      statements                                                         | 125 
|Item
      19   | Exhibits                                                                           | 181 
|                | Signatures
      and Certifications                                                | 182 
|                | Exhibit
      Index                                                                | 182 

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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 22 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 0.824
  = 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 June 14, 2005. 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 June 14, 2005, the Noon Buying Rate was EUR 0.824 = 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, benefits that may result from future restructuring
  programs, the product volumes, the costs and expenditures related to environmental
  compliance or remediation, Health, Safety and Environment targets, future research
  and development initiatives, the Pharma pipeline, the statements in Item 8 Financial
  Information with regard to the outcome of disputes with tax authorities,
  the outcome or consequences of pending or future legal or regulatory proceedingsincluding
  the Remeron® cases, and antitrust investigations and other potential
  related lawsuitsand their effect on the Company and those statements in
  Item 5 Operating and Financial Review and Prospects with regard
  to trends in results of operations, margins, overall market and macroeconomic
  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 2005 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

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4

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 Companys markets in Asia, Latin America, North America and 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 material
  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, 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, the statements
  are also based on information from a range of sources, including analysts
  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.

In the analysis of the
  development of sales, when compared to the previous year, the Company distinguishes
  between the effects from changed volumes, changed selling prices, currency translation,
  acquisitions, and divestments. Autonomous sales growth, which sometimes is used
  in the discussions in this report, is a non-GAAP measure and is defined as the
  change in sales attributable to changed volumes and selling prices. Autonomous
  sales growth excludes currency, acquisition, and divestment effects. As a result,
  autonomous growth numbers reflect comparable sales performance, and are used
  and analyzed by the Companys management for this purpose. Because of the
  comparability of sales performance that can be analyzed by reviewing autonomous
  growth numbers, the Companys management believes that these numbers are
  useful for those reviewing our financial performance. However, the autonomous
  growth numbers should not be viewed in isolation or as alternatives to the comparable
  GAAP measure of net sales and should be read in conjunction with such measure.

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 DATA

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
  as of December 31, 2004 and 2003, and for the three years in the period ended
  December 31, 2004, which appear elsewhere in this annual report. 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 December 31, 2004 and 2003, and for
  each of the three years in the period ended December 31, 2004, have been audited
  by

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KPMG Accountants N.V.,
  independent registered public accounting firm, whose report thereon is included
  in Item 18. The consolidated balance sheets as of December 31, 2002, 2001 and
  2000, and the consolidated statements of income and the consolidated statements
  of cash flows for the years ended December 31, 2001 and 2000 were also audited
  by KPMG Accountants N.V.; however, those balance sheets, statements of income,
  and statements of cash flows are not included in this Form 20-F.

Reference is made to Note
  22 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, as well as certain other lines of the Consolidated Statement of Income
  and the Consolidated Balance Sheet.

|                                              |                                                               
|--------------------------------------------- | --------------------------------------------------------------
|                                              | Selected
      financial data for the years ended December 31,
|In millions, except
      per share amounts   | 2004                                                          
|                                              |                                                               
|                                              | USD                                                           
|                                              | (a)                                                           
|Consolidated Income
      data:               |                                                               
|Amounts in accordance
      with NL GAAP:     |                                                               
|                                              |                                                               
|Net sales                                     | 15,398                                                        
|Operating income                              | 1,578                                                         
|Net income                                    | 1,039                                                         
|Basic earnings per
      share / ADR (b)      | 3.64                                                          
|Amounts in accordance
      with US GAAP:     |                                                               
|Net sales                                     | 15,388                                                        
|Operating income                              | 1,578                                                         
|Net income                                    | 1,010                                                         
|Basic earnings per
      share / ADR (b)(c)   | 3.53                                                          
|Diluted earnings per
      share / ADR (b)(c) | 3.53                                                          
|                                              |                                                               
|Consolidated Balance
      Sheet data:        |                                                               
|Amounts in accordance
      with NL GAAP:     |                                                               
|Total assets                                  | 15,055                                                        
|Long-term borrowings                          | 2,903                                                         
|Shareholders
      equity                    | 3,684                                                         
|                                              |                                                               
|Amounts in accordance
      with US GAAP:     |                                                               
|Total assets                                  | 18,826                                                        
|Long-term borrowings                          | 2,902                                                         
|Shareholders
      equity                    | 7,436                                                         
|                                             

|(a) | Amounts
      in this column have been translated solely for the convenience of the reader
      at the Noon                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Buying Rate on June
      14, 2005, of EUR 0.824 = USD 1.00.                                                                                                     
|(b) | American Depositary
      Receipts.                                                                                                                              
|(c) | For the breakdown on
      earnings from continued and discontinued operations see Note 22 of the Notes
      to the Consolidated Financial Statements under (n).

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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.

|                            
|----------------------------
|                            
|Year
      endedDecember 31,
|                            
|                            
|                            
|2000                        
|2001                        
|2002                        
|2003                        
|2004                        
|                            

* 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.

|                    
|--------------------
|Year
        ended  
|December
        31,
|                    
|                    
|2000                
|2001                
|2002                
|2003                
|2004                
|                    

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

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

|             
|-------------
|             
|             
|December 2004
|January 2005 
|February 2005
|March 2005   
|April 2005   
|May 2005     
|             

On June 14, 2005, the noon
  buying Rate was EUR 0.824 = USD 1.00.

Dividends, if any, will
  be paid in euros, and any exchange rate fluctuations may affect the USD amounts
  received by holders of ADRs upon conversion by the depositary of such dividends.

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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.

Doing business inherently
  involves taking risks, and by taking measured risks the Company strives to be
  sustainable. This situation calls for creating a proper balance between entrepreneurial
  attitude and risk levels associated with business opportunities. The Company
  fosters a high awareness of business risks and internal control procedures,
  geared to safeguarding transparency in our operations.

|- | Within
      Akzo Nobel, all managers at all levels are responsible for risk management
      as an integral part of their day-to-day operations and decisions.                                                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | They are all required
      to identify enterprise risks affecting their businesses and to manage them
      adequately.                                                                                                                                                                                                
|- | The Akzo Nobel Risk
      Management function supports and develops the framework that enables managers
      to fulfill these responsibilities.                                                                                                                                                                        
|- | Risk boundaries are
      governed by Akzo Nobels Company Statement, Business Principles, Internal
      Authority Schedules, and Corporate Directives in such areas as Finance &
      Control; Insurance; Health, Safety and Environment; Human Resources; Communications;
      and Legal.                          
|- | Risk reporting covers
      the perceived likelihood, the assessed impact, and the effectiveness of
      control measures in place to deal with risks. Reporting on these elements,
      as well as those preemptive and remedial actions is an integral part of
      the Companys Business Planning & Review cycle.
|- | The internal control
      system, audit procedures, and independent appraisals are designed to assist
      in maintaining the effectiveness of Akzo Nobels risk management approach.                                                                                                                                 

Our Risk Management framework
  complies with the Enterprise Risk Management  Integrated Framework of
  COSO (the Committee of Sponsoring Organizations of the Treadway Commission).
  The procedures and results are reviewed by the Board of Management and discussed
  in the Supervisory Board.

The diversity of businesses
  within Akzo Nobel leads to a large number of different risk factors, each of
  which may result in a material impact on a particular business unit but may
  not materially affect the Company as a whole. The diversity of the Companys
  businesses and processes may allow it to offset some risks faced by the Company.
  However, there can be no assurance that our Risk Management function or our
  diversity will mitigate any risks we may face. 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

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businesses, revenues, operating
  income, net income, net assets and liquidity and capital resources. The Companys
  risk management systems are focused on timely discovery of such additional risks.

The factors that could affect
  our financial condition or our business or 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 and from low-cost producers in other business
  areas. Loss of patent protection typically leads to loss of sales in the products
  markets and could affect the Companys future results.

In December 2002, the Company
  lost an important court case on its major product Remeron® in
  the United States, which in 2003 and 2004 led to strong generic competition,
  loss of market share and a negative impact on performance. In the course of
  2004, the Company also lost market exclusivity for Remeron® in
  certain countries in Europe.

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
  also be noted that certain studies prepared for the European Commission 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. In addition, 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.

The Company is looking
  for more partners to share the burden and success of product development in
  this area.

If the Company fails to
  continue developing commercially successful products or fails to find suitable
  partners, this could have a material adverse effect on the Companys business
  and results of operations. If

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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.

On the other hand there
  is also risk involved with the reliance on partners for the sharing of costs
  and generation of revenues. If these partners do not perform in accordance with
  our agreements with them, this could also have a material adverse effect on
  the Companys business and results of operations.

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 effect 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 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
  did not receive FDA approval for its antidepressant gepirone ER.

In light of the uncertainties
  in the hormone therapy area, as also reflected in a number of studies that downgrade
  some of the perceived positive health effects of treatments, the refiling of
  additional data with the FDA for Livial® 1.25 mg (U.S.) is at
  present to be expected at the end of 2005.

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

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.

Some 30 percent 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

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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
  cuts 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 in our pharmaceuticals business to continue.

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, and business interruption.

It is the Companys
  policy to try to mitigate production risks by spreading of production and an
  adequate inventory policy combined with contingency planning and appropriate
  risk transfer arrangements (e.g. insurances).

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.

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.
  Although Akzo Nobel aims to use its purchasing power and long-term relationships
  with suppliers to acquire raw materials and their constant delivery at the best
  conditions, the Company cannot assure that it will always 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 or the Companys requests. 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 still aggravated by the
  unstable situation in the Middle East.

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.

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The Company 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.

Seasonality may adversely
  affect the operating results of the Companys Coatings and Chemicals business.

A portion of the Companys
  Coatings and Chemicals 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.

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.

The outcome of tax disputes,
  litigation, indemnification and guarantees, and regulatory action could adversely
  affect the Companys business and results of operations.

In December 2002, summary
  judgment of noninfringement was obtained by certain generic drug manufacturers,
  sued by the Company under the U.S. Hatch-Waxman Act, alleging inducement of
  infringement by such manufacturers of the Company's U.S. patent protecting the
  use of mirtazapine (Remeron®) in combination with one or more
  SSRIs for the treatment of depression. Three of the generic drug manufacturers
  sued by the Company filed antitrust claims against the Company as counterclaims
  in the infringement actions brought by the Company. In addition, antitrust claims
  were filed against the Company in the United States on behalf of nine large
  chain store and grocery store pharmacies, and by alleged classes of direct and
  indirect purchasers of Remeron®. These cases were consolidated
  in the Federal District Court of New Jersey. In addition to these cases, the
  state attorneys general of the States of Texas, Florida, and Oregon opened civil
  investigations to determine if the Company's conduct violated their respective
  laws and the Federal Trade Commission (FTC), working with the State Attorneys
  General, opened a civil investigation to determine whether the Company violated
  federal law.

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In April 2004, the Company
  reached settlements with the three generic manufacturers in an aggregate amount
  of USD 28 million. In September 2004, the Company reached a settlement with
  the indirect purchaser class (class of consumers and third party payers in the
  United States who paid for mirtazapine during the relevant period) for total
  consideration of USD 36 million. This settlement also resolved the claims and
  investigations of the three state attorneys general that had commenced investigations
  as well as the claims of all other states. The FTC announced that in light of
  the states settlement it was closing its investigation without taking
  any action. The indirect purchasers and state attorneys general
  settlement is subject to certain conditions including, but not limited to, approval
  by the Federal District Court of New Jersey. In September 2004, the Company
  also settled with the nine large chain store and grocery store plaintiffs. The
  Company continues to believe that its actions in obtaining and enforcing its
  intellectual property rights were appropriate. However, given the costs and
  risks of defending these actions, the Company took the opportunity to resolve
  these matters. Including legal costs the Company recognized a total pretax charge
  of EUR 89 million for the Remeron® cases during 2004.

The action brought by an
  alleged class of direct purchasers remains pending in the Federal District Court
  in Newark, New Jersey. In September 2004, the District Court entered an order
  dismissing three of the five claims brought by those direct purchasers while
  denying the plaintiffs motion for partial summary judgment. In February
  2005 the District Court entered an order denying the plaintiffs motion
  for partial summary judgment on the issue of establishing monopoly power and
  granting the Companys motion for summary judgment with respect to establishing
  monopoly power via the direct evidence approach. The Court indicated that
  it would address the Companys pending motion for summary judgment with
  respect to the traditional market definition approach in a future
  opinion. That motion, as well as the Companys motion for summary
  judgment addressed to plaintiffs two remaining claims, remain outstanding,
  as does the plaintiffs motion for class certification and its motion for
  partial summary judgment with respect to an aspect of one of its claims. No
  trial date has been set. The Company will continue to defend the remaining claims
  vigorously.

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. Furthermore, in the context of the divestitures of
  businesses the relevant Akzo Nobel companies have agreed to indemnify and/or
  provide guarantees to the buyers (and/or their successors and assigns) regarding
  certain representations and warranties or developments.

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

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 European Union, the United
  States, and Canada into alleged violations of the respective antitrust laws
  for some products in these jurisdictions. The Company is fully cooperating with
  the authorities in these investigations. In addition, the Company is defending
  civil damage claims in relation to some of these alleged antitrust violations.
  At December 31, 2003, the Company had a provision for antitrust cases of EUR
  75 million. Fines, civil damage settlements, and legal costs incurred in 2004
  in connection with these cases amounted to EUR 5 million (2003: EUR 27 million).

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In 2004, based on an estimate
  of probable fines, civil damage claims, 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 added EUR 110 million to the provision for antitrust
  cases. This addition to the provision also includes amounts related to the fines
  of EUR 21 million, imposed by the European Commission in December 2004 in connection
  with Akzo Nobel companies alleged involvement in a cartel for choline
  chloride, and of EUR 84.5 million, imposed by the European Commission in January
  2005 for alleged involvement in a monochloroacetic acid cartel. The Company
  has appealed both decisions. At December 31, 2004, the provision for antitrust
  cases amounted to EUR 180 million.

In January 2005 the Company
  received a Statement of Objections by the EU Commission regarding an alleged
  EU cartel in Hydrogen Peroxide and Persalts. In this case as well as in investigations
  by the US DOJ and the Canadian Bureau of Competition into alleged antitrust
  violations in Hydrogen Peroxide in North America the Company is fully cooperating
  with the authorities. The Company believes that discussions with the US DOJ
  regarding a possible disposition of the matter may be finalized in the next
  few months.

It should be understood,
  however, that in light of possible future developments such as (a) the outcome
  of investigations of the various antitrust authorities, (b) potential additional
  lawsuits by (direct or indirect) purchasers, (c) possible future civil settlements,
  and (d) rulings or judgments in the pending investigations or in related civil
  suits, the antitrust cases may result in additional liabilities and related
  costs. However, 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,
  if and to the extent that the contingent liabilities materialize, they are typically
  paid over a number of years and the timing of such payments cannot be predicted
  with confidence. The Company believes that the 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 or cash flows in any one accounting period.

With regard to Flexsys,
  a 50/50 joint venture for rubber chemicals with Solutia Inc., authorities in
  the United States, Canada, and Europe are investigating alleged antitrust violations
  in the rubber chemicals industry. We have been informed by Flexsys management
  that it is cooperating with the authorities and will continue to do so. In April
  2005 both Flexsys and the Company received a Statement of Objections by the
  EU Commission. Based on this Statement of Objections the Company has reason
  to believe that Flexsys and the Company will not be fined by the EU Commission.
  We are also aware of a number of purported class actions and individual actions
  having been filed against Flexsys in federal court (by direct purchasers) and
  in various state courts (by alleged indirect purchasers) in the United States,
  and in the provinces of Quebec and Ontario, Canada. We are informed that fifteen
  of the U.S. state court actions have been dismissed against Flexsys on various
  grounds and that motions to dismiss or otherwise dispose of the remaining cases
  are still pending in seven remaining state cases. The Company is named as codefendant
  in the federal actions and in one state action in Tennessee. Flexsys has entered
  a settlement agreement with the plaintiffs in the federal class action, subject
  to certain conditions including but not limited to final court approval. (currently
  scheduled for June 21, 2005). The settlement resolves the plaintiffs claims
  against the Company. Flexsys has recognized certain provisions for these cases
  and the Company does not believe that it will be liable for funding any judgments
  against, settlements made by, or related costs incurred by Flexsys. The carrying
  value of the Companys investment in Flexsys, however, may be affected
  by these cases.

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Product liability claims
  could adversely affect the Company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.

The Companys business
  will continue to expose it to risks of environmental liabilities.

The Company uses hazardous
  materials, chemicals, biological 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:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|-                                                                                                                                                                                            
|-                                                                                                                                                                                            
|-                                                                                                                                                                                            

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.

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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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 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 45 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 were EUR 130 million
  higher than in 2002. Furthermore, the Company recognized an additional minimum
  unfunded pension liability of EUR 1.8 billion (pre-tax), at December 31, 2002.

As a result of some recovery
  of the stock markets in 2003, pension charges for 2004 were EUR 50 million lower
  than in 2003. Due to further recovery of the stock markets in 2004, 2005 pension
  charges will be EUR 50 million lower than in 2004 (based on International Financial
  Reporting Standards, under which the Company will report as from January 1,
  2005). The additional minimum unfunded pension liability at December 31, 2004,
  decreased to EUR 1.2 billion (pre-tax).

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 from Moodys is A3 with a short-term rating of
  P-2, both with a so-called stable outlook. The current long-term
  credit rating from Standard & Poors is A- and their short-term rating
  is A-2, both with a so-called negative outlook.

The present rating is three
  notches above the so-called high-yield zone. However, if the Companys
  rating would decline or would approach or enter the high-yield zone, this would
  result in increased financing costs for the Company and 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 evaluated independently of any other rating.

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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.

Item
  4. INFORMATION ON THE COMPANY

Akzo Nobel N.V. is a public
  limited liability company (Naamloze Vennootschap) 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. The address of the Companys website
  is www.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:

|M. Kennith
      Frank III                    |     |                                         
|--------------------------------------------- | --- | ----------------------------------------
|SVP and General Counsel
      Akzo Nobel Inc. |     |                                         
|Akzo Nobel Inc.                               |     |                                         
|7 Livingstone Avenue                          |     |                                         
|Dobbs Ferry, NY 10522-2222                    |     |                                         
|+1 (914) 674-5181                             |     |                                         
|                                              |     |                                         
|Copies to:                                    |     |                                         
|A. Jan A.J. Eijsbouts                         | and | Richard C. Morrissey,
      Esq.        
|General Counsel                               |     | Sullivan & Cromwell
      LLP           
|Akzo Nobel N.V.                               |     | 1 New Fetter Lane,
      London EC4A 1AN
|Velperweg 76                                  |     | United Kingdom                          
|6824 BM Arnhem                                |     | + 44 (207) 959 8900                     
|The Netherlands                               |     |                                         
|+31 (26) 366 2730                             |     |                                         

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 63,600 people
  during 2004. Sales in 2004 were EUR 12.7 billion, with Pharma, Coatings, and
  Chemicals accounting for EUR 3.2 billion, EUR 5.2 billion, and EUR 4.3 billion,
  respectively.

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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
  coatings in others. In the chemical products industry, Akzo Nobel is a significant
  competitor 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 economies in Western Europe, the United States, and
  Asia, and is, except for certain Coatings and Chemicals 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,
  SouthEast Asia and Latin America.

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®, 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.

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In November 1999, the Company
  acquired Hoechst Roussel Vet (HR Vet), the veterinary business of
  Hoechst AG. Through this acquisition, Intervet, the veterinary medicines business
  of Akzo Nobel became a significant player in the veterinary medicines 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 stakeat present of some 20
  percentin this company, which is gradually divesting its activities.

In September 2003, we announced
  the plans to divest the Catalysts, Phosphorus Chemicals, and Coating Resins
  businesses to create room to maneuver and improve the Companys balance
  sheet. Together, these solid and profitable businesses represented EUR 0.8 billion
  in consolidated sales, on an annual basis. In 2004 the divestments were completed
  generating approximately EUR 1.0 billion.

In February 2005, the new
  strategic focus for Chemicals was announced, which will result in a smaller,
  but stronger, portfolio. As a consequence of this new focus, the Company intends
  to divest several businesses that do not fit in this new strategy, including
  Ink and Adhesive Resins, Oleochemicals, Salt Specialties, PVC Additives, Solar
  Salt Australia, and Methyl Amines/Choline Chloride. All the activities earmarked
  for divestment represent a total of around EUR 700 million in 2004 sales.

Over the years, Akzo Nobel
  acquired and divested numerous other activities and businesses, which all were
  of a much lesser size than the ones mentioned above. For recent acquisitions
  and divestments reference is made to Note 2 of the Notes to the Consolidated
  Financial Statements.

For a list of the Companys
  subsidiaries, see Exhibit 8 to this Report, which is incorporated by reference
  herein.

B. BUSINESS OVERVIEW

Operations are organized
  in three groups on the basis of affinity between activities: Pharma, Coatings
  and Chemicals. Within each group the activities are carried out in business
  units.

The Board of Management
  is the highest executive authority. At the corporate level, key tasks are coordinated
  in the fields of strategy; finance; 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
  multicultural group of companies with activities in pharma, coatings, and chemicals.
  Our ambition is to create above average economic value over the business cycle.
  We strive to be a company which talented, ambitious people are proud to work
  for. We also want to be a company that is respected in the societies in which
  it operates.

Capital allocation is focused
  on building sustainable leading business positions, reflected in attractive
  growth, returns significantly above the costs of capital, and substantial operational
  cash flows. We actively restructure and divest activities that do not meet these
  criteria. We are led by medium- to long-term value creation.

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We develop competitive
  advantages by combining the focus and entrepreneurial spirit of a decentralized
  business unit organization with the scale and power of a corporate center that
  provides access to global capital markets, managerial talent, and best practice
  management processes.

Our deeply ingrained business
  principles are the expression of a strong, shared international culture. They
  give us guidance in the complex, ever changing global environment in which we
  operate.

We regularly evaluate the
  added value of the composition of our portfolio in a pragmatic way, driven by
  our value creation principle. As in the past, we will not shy away from bold
  moves.

Pharma Group

Our human healthcare activities
  are experiencing a period of declining sales. As a consequence, we have lowered
  the cost base and will continue to critically scrutinize the organization for
  further adjustments. At the same time we will continue to invest heavily in
  R&D to boost our pipeline. We will focus on in-licensing in areas where
  we have strong market positions but lack sufficient products. On the other hand,
  we are actively out-licensing and partnering in areas where we have limited
  development and marketing capabilities. We are focused on restoring growth in
  the medium term through the quality of our pipeline.

We have integrated Organon
  and Diosynth effective January 2005. Diosynth is our focused niche player in
  the Active Pharmaceutical Ingredients market and our main biotech activity.
  Diosynths third-party business will be continued under the name Diosynth.
  The integration will enable us to combine existing biotechnology competencies
  and reduce the complexity of our organization.

We are the third largest
  company in animal health in the world. We aim to remain a global leader through
  autonomous growth, aided by our strong commitment to R&D, andwhere
  appropriateacquisitions.

Pharmas medium-term
  financial targets are a return on sales (ROS) of around 17.5 percent and a return
  on investment (ROI) of 35 percent. For the long term, we strive for a ROS of
  over 20 percent and a ROI of 40 percent. In 2004, ROS1 and ROI2
  were 12 percent and 16 percent, respectively.

Coatings Group

Our coatings business is
  the world leader. It embraces most of the markets in both consumer and industrial
  applications for paints and coatings.

We are focusing on growth
  in the emerging markets of Asia, Eastern and Central Europe, and South and Central
  America through autonomous development and acquisitions. We will also continue
  to enhance our presence in the mature markets through selected acquisitions.

Our ambition is to remain
  market leader and to participate in the worldwide consolidation of the coatings
  industry, which we believe is inevitably necessary because our supplier and
  customer base strengthens globally.

|1 | ROS is
      operating income divided by 1 percent of net sales.                                                                                                                                                                                                                                            
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | ROI is operating income
      divided by 1 percent of the average invested capital at the beginning and
      end of the year.    
      Invested capital is total assets less cash and cash equivalents, less current
      liabilities, and exclusive of amounts related to the minimum pension liability.

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Our medium-term financial
  target is 25 percent ROI, leading in due course to around 30 percent. In 2004,
  ROI was 17.5 percent. However, excluding restructuring and impairment charges,
  ROI was 20.5 percent.

Chemicals Group

We have a wide spread of
  activities within our chemicals portfolio with a mixture of good leadership
  positions and several smaller market penetrations. The financial returns from
  the various businesses also differ. We are making a determined effort to streamline
  and fine-tune our Chemicals portfolio by concentrating on actively growing profitable
  businesses which we have identified within selected strategic markets. This
  will result in us exiting noncore businesses and rationalizing the support structure
  around the selected core platforms.

The leading guideline is
  to focus on profitable growth in those markets where we have a competitive advantage
  and should achieve sustainable, above-average financial returns.

In February 2005, we announced
  that as a consequence of this new focus, the Company intends to divest several
  businesses that do not fit in this new strategy, including Ink and Adhesive
  Resins, Oleochemicals, Salt Specialties, PVC Additives, Solar Salt Australia,
  and Methyl Amines/Choline Chloride. All the activities earmarked for divestment
  represent a total of around EUR 700 million in 2004 sales.

Our financial target is
  to achieve a ROI of around 17.5 percent over the economic cycle. In 2004, ROI
  was 33 percent. Excluding gains on divestments and restructuring and impairment
  charges, ROI was 15 percent.

BUSINESS UNITS

The business units and
  their products (as at December 31, 2004) are summarized below:

PHARMA GROUP

Organon

| | Brand-name
      prescription pharmaceuticals in the fields of contraceptives and infertility
      treatment, hormone therapy (HT) and osteoporosis, CNS products (antidepressants,
      antipsychotics), and muscle relaxants.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Intervet

| | Veterinary vaccines
      and pharmaceuticals.
|- | ----------------------------------------------

Diosynth

| | Complex active pharmaceutical
      ingredients based on chemicals and biochemical processes.
|- | ---------------------------------------------------------------------------------------------

As of January 1, 2005,
  Organon and Diosynth were integrated in one business unit, which combines Pharmas
  know-how, especially in the biotechnology area, and simplifies supply chain
  management.

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COATINGS GROUP

Decorative Coatings

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

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.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Car Refinishes

| | Finishes for passenger
      cars, commercial transportation, and automotive plastic components.
|- | ------------------------------------------------------------------------------------------------

Marine & Protective
  Coatings

| | Coatings
      for protection and decoration of hulls, interiors, and superstructures of
      ships and yachts, aerospace coatings, protective coatings, and fire-retardant
      products for large plants and offshore installations.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Nobilas

| | Car accident management
      services.
|- | ---------------------------------------

As from January 1, 2005,
  Nobilas has been moved from the Coatings group to Other.

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22

CHEMICALS GROUP

Pulp and Paper Chemicals

| | Pulp
        bleaching chemicals and chemicals for the manufacture of paper and board;
        specialty resinsfor
        adhesives and polymer manufacturing; high performance separation products
        forpharmaceuticals.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Functional Chemicals

| | Chelates, micronutrients,
      flame retardants, animal feed additives, PVC additives, and intermediatessuch as carbon
      disulfide, monochloroacetic acid, methyl amines and ethylene amines.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Surface Chemistry

| | Surfactants
        and fatty acids used in detergents, cleaning, and personal care, as well
        as in asphaltproduction
        and the agro, oil, mining, and textile industries; cellulosic specialties
        such as thickenersand
        additives for coatings, building materials, pharmaceutical products, food,
        mining and oil.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Base Chemicals

| | Chlorine and caustic
      soda for industrial applications.
|- | ------------------------------------------------------------

Polymer Chemicals

| | Polymerization
        catalysts such as organic peroxides, metal alkyls, and custom-manufactured
        Ziegler-Natta systems for the polymer-producing industry; high-purity
        metal organics for theelectronic
        industry, and intermediates for pharmaceutical products.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Salt

| | High quality salt for
      electrolysis, other chemical industries, food applications, and consumer
      use.
|- | ---------------------------------------------------------------------------------------------------------------

Energy

| | Supply of energy (cogeneration)
      and other utilities.
|- | ----------------------------------------------------------

In February 2005, we announced
  that we will streamline the Chemicals portfolio in order to competitively realign
  the business for growth, profitability, and leadership positions in selected
  markets. These efforts will result in a smaller portfolio that is stronger,
  creates more value, and is better structured to meet our financial expectations.
  The Chemicals activities will be concentrated in five business units: Pulp &
  Paper Chemicals, Polymer Chemicals, Surfactants, Functional Chemicals, and Base
  Chemicals (the latter will comprise the Chlor-Alkali, Electrolysis Salt, and
  Energy businesses). We are committed to ensure that leading positionswhich
  are key to our new strategywill be established or consolidated. Expansion
  in growth markets such as China will also be prioritized.

As a consequence of this
  new focus, the Company intends to divest several businesses that do not fit
  this new strategy, including Ink and Adhesive Resins, Oleochemicals, Salt Specialties,
  PVC Additives, Solar Salt Australia, and Methyl Amines/Choline Chloride. All
  the activities earmarked for divestment represent a total of around EUR 700
  million in 2004 sales, and any bids will be expected to reflect the value of
  the businesses concerned.

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23

ACTIVITIES OF AKZO NOBEL

Industry Segment Information

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.

|                                                          |                
|--------------------------------------------------------- | ---------------
|                                                          | Net
      sales
|Millions of euros                                         | 2004           
|                                                          |                
|                                                          |                
|Pharma                                                    | 3,246          
|Coatings                                                  | 5,249          
|Chemicals                                                 | 4,305          
|Miscellaneous products,
      intragroup deliveries, non- |                
|allocated
      items and eliminations                    | (112           
|                                                          |                
|                                                          |                
|Total                                                     | 12,688         
|                                                          |                



|                              |                          
|----------------------------- | -------------------------
|                              |                          
|                              | Identifiable
      assets
|Millions of euros             | 2004                     
|                              |                          
|                              |                          
|Pharma                        | 2,999                    
|Coatings                      | 3,088                    
|Chemicals                     | 2,763                    
|Miscellaneous products,       |                          
|nonallocated
      and        |                          
|eliminations,
      including |                          
|cash
      and cash           |                          
|equivalents                   | 3,237                    
|                              |                          
|                              | 12,087                   
|Nonconsolidated               |                          
|companies                     | 318                      
|                              |                          
|Total                         | 12,405                   
|                             



Percent of total net
  sales and total operating income

|                                              |     
|--------------------------------------------- | ----
|                                              |     
|                                              | 2004
|                                              |     
|                                              |     
|Pharma                                        | 26  
|Coatings                                      | 41  
|Chemicals                                     | 34  
|Miscellaneous products
      and nonallocated | (1  
|                                              |     
|Total                                         | 100 
|                                              |     



|1 | 2003 and 2002 figures
      have been adjusted for a minor regrouping of activities between Coatings
      and Chemicals.
|- | -------------------------------------------------------------------------------------------------------------------------



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24

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.

|                                                                                               |  |                                   |                                                                                                                                                                        |                               |   |                                                                                                                                                                                                                                
|---------------------------------------------------------------------------------------------- |  | --------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Major
        Product Lines                                                                    |  | Key
        Products/Applications |                                                                                                                                                                        | Competitive
        Position*
|                                                                                               |  |                                   |                                                                                                                                                                        |                              
|                                                                                               |  |                                   |                                                                                                                                                                        |                               |   |                                                                                                                                                                                                                                
|Prescription drugs,veterinary
      products, andcomplex
      activepharmaceuticalingredients |  |                                  | Contraceptives, infertilitytreatment, hormone
      therapy (HT)and
      osteoporosis, CNS products(antidepressants,
      antipsychotics),and
      muscle relaxants |                               |  | Among top three suppliers
      ofhormonal contraceptives,
      secondlargest
      in infertility products; amongtop
      five players in HT; investing forgrowth
      in CNS; world leader inneuromuscular
      relaxants
|                                                                                               |  |                                   |                                                                                                                                                                        |                               |   |                                                                                                                                                                                                                                
|                                                                                               |  |                                  | Veterinary vaccines,
      andpharmaceuticals                                                                                                                          |                               |  | Worlds third-largest
      supplier ofveterinary
      products; leading inveterinary
      vaccines                                                                                                                          
|                                                                                               |  |                                   |                                                                                                                                                                        |                               |   |                                                                                                                                                                                                                                
|                                                                                               |  |                                  | Complex active pharmaceuticalingredients                                                                                                                               |                               |  | Leading supplier of
      steroids andsynthetic
      peptides, strong inheparins,
      and biopharmaceuticals                                                                                                                



|* | See the cautionary
      statements and the remarks on how the Company determined its competitive
      positions under Introduction on pages 3 and 4.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------

Pharma continues to work
  hard to reduce the complexity within its business units and improve operational
  efficiencies. U.S. dollar weakness and increasingly stiff competition, especially
  for Remeron® made these steps all the more important. The new
  strategy developed in 2003 was actively pursued with priorities for a clear
  focus on leading positions, alliances to strengthen our growth opportunities
  in other areas, and aggressive cost cutting.

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. Sold as Desogen® in the United States, Marvelon®
  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®, our contraceptive vaginal ring,
  was launched in the United States and Europe in 2002 and over 2003 and 2004
  gathered sales momentum. The Company also produces fertility products and medicines
  for the treatment of menopausal complaints and, as an innovator in the field
  of psychiatric drugs, is marketing antidepressant Remeron®. However,
  after an unfavorable court ruling in December 2002 for Remeron®,
  this product lost its market exclusivity in the United States and has faced
  intense generic competition. In 2004, Remeron® also lost market
  exclusivity in certain countries in Europe.

In the fourth quarter of
  2003, the Company concluded an agreement with Pfizer, whereby Pfizer and Organon
  will collaborate on the clinical development and manufacturing of asenapine,
  and co-promote the product in the United States, European Union, Japan and other
  markets. Asenapine is a potentially new

|
|

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25

psychotropic medication
  for the treatment of a variety of disorders that is in Phase III1
  trials for schizophrenia and bipolar disorders. Pfizer made an initial payment
  of USD 100 million (EUR 88 million) in December 2003. The agreement with Pfizer
  also provides for additional milestone payments of up to USD 270 million, contingent
  upon gaining further regulatory approvals and the launch of asenapine in the
  United States, Europe and Japan, as well as the attainment of certain agreed
  sales levels.

Together with Sanofi-Synthélabo,
  the Company developed the new antithrombotic (pentasaccharide) Arixtra®,
  which has been approved and launched in the U.S. and Europe. Early in 2004,
  Organon transferred to Sanofi-Synthélabo its remaining rights and development
  obligations for Arixtra® and other oligosaccharides, such as
  idraparinux (SanOrg 34006), in exchange for revenues based on future sales from
  jointly developed antithrombotic products.

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 Covance
  Biotechnology Services Inc (in 2001), the Company believes that Diosynth has
  sufficient size and products to play a leading role in the developing biopharmaceutical
  market segment. In 2003 and 2004, Diosynth was increasingly confronted with
  deteriorating conditions in third-party markets for both chemical and biotech
  products, and with lower captive demand from Organon. To address this situation,
  restructuring programs were carried out in 2004.

In January 2005, we completed
  the integration of Diosynth and Organon. The integrated business unit combines
  Pharmas know-how, especially in the biotechnology area, and simplifies
  supply chain management. Third-party customers of Diosynth will continue to
  be served under the Diosynth name.

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 May 2003, a new vaccine production
  facility in DeSoto, Kansas, was opened.

In 2002, we 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, is housed in a new
  vaccine production facility in Boxmeer, which was opened in December 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, the facility
  will produce antigens for veterinary vaccines.

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.

|1 | Large comparative study
      (compound versus placebo and/or established treatment) in patients to establish
      clinical benefit and safety.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------

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The following is the current
  pipeline (Phase II and later).

|Project                                 | Description                                                                                                                                                           | Phase                                                                     
|--------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------
|                                        |                                                                                                                                                                       |                                                                           
|Human
      healthcare                  |                                                                                                                                                                       |                                                                           
|Reproductive
      Health               |                                                                                                                                                                       |                                                                           
|Org
      3236 + TU                     | Male
      fertility control                                                                                                                                          | II                                                                        
|Org
      36286                         | Long-acting
      ovulation inducer                                                                                                                                   | III                                                                       
|Org
      50081                         | Serotonin
      -2- blocker (hot flashes)                                                                                                                             | III                                                                       
|Livial®                                 | Selective
      tissue estrogenic activityregulator                                                                                                                   | III (approved outside
      theUnited States)                             
|Implanon®                               | Progestogen
      implant                                                                                                                                             | Approvable in United
      States(approved
      outside the UnitedStates)
|                                        |                                                                                                                                                                       |                                                                           
|Psychiatry                              |                                                                                                                                                                       |                                                                           
|Org
      24448                         | AMPA
      receptor modulator                                                                                                                                         | II                                                                        
|Org
      34517                         | HPA
      axis modulator                                                                                                                                              | II                                                                        
|Org
      50081                         | Serotonin
      -2- blocker (sleep disorders)                                                                                                                         | II                                                                        
|Asenapine                               | Dopaminergic,
      adrenergic andserotonergic
      antagonist                                                                                                       | III (collaboration
      with Pfizer)                                     
|                                        |                                                                                                                                                                       |                                                                           
|Anesthesia                              |                                                                                                                                                                       |                                                                           
|Org
      25969                         | Muscle
      relaxant binding agent                                                                                                                                   | III                                                                       
|                                        |                                                                                                                                                                       |                                                                           
|Cardiovascular                          |                                                                                                                                                                       |                                                                           
|Org
      42675                         | Dual
      inhibitor (anti-IIA/anti-Xa)                                                                                                                               | II                                                                        
|                                        |                                                                                                                                                                       |                                                                           
|Active
      pharmaceuticalsingredients | Many
      products in various stages of development, in general on a contractmanufacturing
      basis in the areas of biotechnology, synthetic peptides andsteroids |                                                                           
|                                        |                                                                                                                                                                       |                                                                           
|Veterinary
      products               | Numerous
      new products (vaccines and pharmaceuticals) in various stages ofdevelopment                                                                            |                                                                           

Explanatory remarks

|Phase II   | Determination of close
      and initial evaluation of efficacy, conducted in a small number ofpatients.                                                                                                                           
|---------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Phase III  | Large comparative study
      (compound versus placebo and/or established treatment) inpatients
      to establish clinical benefit and safety.                                                                                    
|Filed      | Marketing authorization
      application (Europe) or new drug application (United States) filedwith
      regulatory authorities.                                                                                                 
|Approvable | The FDA in principle
      has a positive opinion on the product but has some additionalquestions,
      which may of may not imply additional clinical studies. Also the labeling
      mightstill be
      subject of discussion.

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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, and industrial and consumer adhesives.

|Major Product
      Lines    |  | Key
      Products/Applications |                                                                                                                                                                                                                                                      | Competitive
      Position*
|---------------------------- |  | ------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------
|                             |  |                                 |                                                                                                                                                                                                                                                      |                            
|                             |  |                                 |                                                                                                                                                                                                                                                      |                            
|Coatings and relatedproducts |  |                                | Coatings for decoration
      andprotection
      of architectural structures                                                                                                                                                                        |                            
|                             |  |                                 |                                                                                                                                                                                                                                                      |                            
|                             |  |                                | Powder coatings, coatings
      for wood,metal,
      coil and plastics, and non-stick
      coatings                                                                                                                                                |                            
|                             |  |                                 |                                                                                                                                                                                                                                                      |                            
|                             |  |                                | Coatings for protection
      anddecoration
      of hulls, interiors, andsuperstructures
      for ships and yachts,aerospace
      coatings, protectivecoatings,
      and fire-retardant productsfor
      large plants and offshoreinstallations |                            
|                             |  |                                 |                                                                                                                                                                                                                                                      |                            
|                             |  |                                | Finishes for passenger
      cars,commercial
      transportation andautomotive
      plastic components                                                                                                                                             |                            
|                             |  |                                 |                                                                                                                                                                                                                                                      |                            
|                             |  |                                | Claims and fleet solutions                                                                                                                                                                                                                           |                            



|* | See the cautionary
      statements and the remarks on how the Company determined its competitive
      positions 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
  years, combined with organic growth, lifted Coatings to the worlds number
  one position based on sales. 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.

The Company supports the
  international initiative of Coatings Care®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® (United Kingdom)
  and Flexa® (the Netherlands)), multinational markets (e.g. Nordsjö®
  and Trimetal®) and truly international markets (e.g. Sikkens®,
  Levis®, and Sadolin®). The strength of these brands
  reflects the Companys color

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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®,
  Akzo Nobel Coatings has been a major player 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 is an international
  market leader in marine, yacht, and protective coatings for heavy-duty applications,
  such as oil rigs. The Companys tradename International®
  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®,
  which transforms rust stains into colorless deposits.

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.

Through Nobilas, the Company
  provides accident management services to insurers, corporate fleet owners, car
  leasing, and rental companies. It draws on the knowledge and experience of Car
  Refinishes in this area of activity. Building the organization and proving the
  concept was the focus for 2004. Accelerated growth is the objective for next
  years.

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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 areas of the chemical industry.

|Major
        Product Lines                                  |  | Key
        Products/Applications |                                                                                                                                                                                                                                                                                                                                                                           | Competitive
        Position*
|------------------------------------------------------------ |  | --------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|                                                             |  |                                   |                                                                                                                                                                                                                                                                                                                                                                           |                              
|                                                             |  |                                   |                                                                                                                                                                                                                                                                                                                                                                           |                              
|Specification,functional,
      andspecialty
      chemicals |  |                                  | Pulp bleaching chemicals
      andchemicals
      for the manufacture ofpaper
      and board; specialty resins forprinting
      ink, adhesives and polymermanufacturing;
      high performanceseparation
      products forpharmaceuticals                                                                                                                             |                              
|                                                             |  |                                   |                                                                                                                                                                                                                                                                                                                                                                           |                              
|                                                             |  |                                  | Functional chemicals
      such aschelates,
      micronutrients, animal feedadditives,
      PVC additives, andintermediates
      such as carbondisulfide,
      monochloroacetic acid,methyl
      amines and ethylene amines                                                                                                                                          |                              
|                                                             |  |                                   |                                                                                                                                                                                                                                                                                                                                                                           |                              
|                                                             |  |                                  | Surfactants and fatty
      acids used indetergents,
      cleaning, and personalcare,
      as well as in asphalt productionand
      the agro, oil, mining, and textileindustries;
      cellulosic specialties asthickeners
      and additives forcoatings,
      building materials,pharmaceutical
      products, food,mining
      and oil; expandablemicrospheres |                              
|                                                             |  |                                   |                                                                                                                                                                                                                                                                                                                                                                           |                              
|                                                             |  |                                  | Polymerization catalysts
      such asorganic
      peroxides, metal alkyls andcustom
      manufactured Ziegler-Nattasystems
      for the polymer-producingindustry;
      high-purity metal organicsfor
      the electronic industry, andintermediates
      for pharmaceuticalproducts                                                                               |                              
|                                                             |  |                                   |                                                                                                                                                                                                                                                                                                                                                                           |                              
|                                                             |  |                                  | Chlorine and caustic
      soda forindustrial
      applications                                                                                                                                                                                                                                                                                                          |                              
|                                                             |  |                                   |                                                                                                                                                                                                                                                                                                                                                                           |                              
|                                                             |  |                                  | Salt for electrolysis,
      other chemicalindustries,
      food applications andconsumer
      use                                                                                                                                                                                                                                                                      |                              



|* | See the cautionary
      statements and the remarks on how the Company determined its competitive
      positions under Introduction on pages 3 and 4.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------

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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.

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. 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 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.

In Northwest Europe, the
  Company has leading positions in the production of chlorine and caustic soda
  for industrial applications.

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.

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®. 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.

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).

In 2004, the Company divested
  the Catalysts, Phosphorus Chemicals, and Coating Resins businesses to create
  room to maneuver and improve the Companys balance sheet. Proceeds were
  approximately EUR 1.0 billion.

In February 2005, we announced
  that we will streamline the Chemicals portfolio in order to competitively realign
  the business for growth, profitability, and leadership positions in selected
  markets. These efforts will result in a smaller portfolio that is stronger,
  creates more value, and is better structured to meet our financial expectations.
  The Chemicals activities will be concentrated in five business units: Pulp &
  Paper Chemicals, Polymer Chemicals, Surfactants, Functional Chemicals, and Base
  Chemicals (the latter will comprise the Chlor-Alkali, Electrolysis Salt, and
  Energy businesses). We are committed to ensure that leading positionswhich
  are key to our new strategywill be established or consolidated. Expansion
  in growth markets such as China will also be prioritized.

As a consequence of this
  new focus, the Company intends to divest several businesses that do not fit
  this new strategy, including Ink and Adhesive Resins, Oleochemicals, Salt Specialties,
  PVC Additives, Solar Salt Australia, and Methyl Amines/Choline Chloride. All
  the activities earmarked for divestment represent a total

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of around EUR 700 million
  in 2004 sales, and any bids will be expected to reflect the value of the businesses
  concerned.

GEOGRAPHIC DATA

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

|                      |                                              
|--------------------- | ---------------------------------------------
|                      | Net
      salesby region
      of destination
|Millions of euros     | 2004                                         
|                      |                                              
|The Netherlands       | 826                                          
|Germany               | 1,159                                        
|Sweden                | 506                                          
|United Kingdom        | 831                                          
|Other European        |                                              
|countries             | 4,012                                        
|USA and Canada        | 2,443                                        
|Latin America         | 726                                          
|Asia                  | 1,535                                        
|Other regions         | 650                                          
|Result on divestments |                                              
|                      |                                              
|Total                 | 12,688                                       
|                      |                                              



|                                                 |                          
|------------------------------------------------ | -------------------------
|                                                 | Identifiable
      assets
|Millions of euros                                | 2004                     
|                                                 |                          
|The Netherlands                                  | 2,799                    
|Germany                                          | 823                      
|Sweden                                           | 846                      
|United Kingdom                                   | 944                      
|Other European countries                         | 2,098                    
|USA and Canada                                   | 1,636                    
|Latin America                                    | 454                      
|Asia                                             | 835                      
|Other regions                                    | 284                      
|                                                 |                          
|                                                 | 10,719                   
|Eliminations and cash
      and cash equivalents | 1,368                    
|Nonconsolidated companies                        | 318                      
|                                                 |                          
|Total                                            | 12,405                   
|                                                 |                          

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

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32

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, for 2005 in general, the exposure retained in the captive insurance
  arrangements is limited to EUR 12 million per occurrence with an annual aggregate
  of EUR 25 million. When losses exceed this annual aggregate, external insurers
  will provide coverage from a deductible level of EUR 1 million. Damages from
  acts of terrorism are excluded from insurance coverage. For damages from natural
  disasters Akzo Nobel retains 10 percent of these damages. The maximum amount
  of loss covered by external insurers for property damage/business interruption
  is EUR 250 million.

For general and product
  liability of Coatings, Chemicals, and Intervet and for general liability of
  Organon (including Diosynth), in 2005 the exposure retained in the captive insurance
  arrangements is limited to EUR 10 million per claim with an annual aggregate
  of EUR 20 million. When losses exceed this annual aggregate, external insurers
  will provide coverage from a deductible level of EUR 0.5 million. For product
  liability of Organon (including Diosynth), in 2005 the exposure retained in
  the captive insurance arrangements is limited to EUR 25 million per claim without
  any annual aggregate. Liabilities as a result of acts of terrorism are excluded
  from insurance coverage. The maximum amount of loss covered by external insurers
  for general product liability is EUR 400 million plus in excess thereof USD
  300 million.

HUMAN RESOURCES

Akzo Nobels decentralized
  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.Some recent developments
  in this area are described below.

In order to place a stronger
  focus on identified areas for improvement, the Board of Management has decided
  to implement a consistent approach to performance management throughout Akzo
  Nobel. The new Performance & Development Dialog (P&D Dialog)
  program, which is based on best practices from various business units and outside
  organizations, was launched in December in all business units. The new program
  includes six core Akzo Nobel competencies which will help embed our values and
  business principles in each employees daily work and behavior. Also included
  in the process are three people management skills, which will drive people management
  excellence throughout the Company.

The establishment of this
  performance appraisal program throughout Akzo Nobel will enable our global businesses
  to place a more consistent focus on high quality people management. The P&D
  Dialog supports the annual alignment of individual objectives with business
  direction, fosters ongoing performance and development dialog, and ensures each
  year a fair and transparent overall assessment and rating for every employee.
  The implementation is heavily supported by communication and training at business
  unit and country level and is targeted to involve the majority of employees
  in 2005, with completion envisaged in 2006.

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33

A major review of our executive compensation scheme took place during the summer of 2004. By the end of the year, this resulted in the announcement of the new remuneration program for all
executives, which will remain strongly EVA-based. The program differentiates individual executive compensation via a strong link to the overall performance rating from the new P&D Dialog, drives teamwork between businesses by strengthening the
focus on Akzo Nobels results, and ensures alignment with market developments in terms of cash payment and equitable compensation.

In April 2004, the Employee Share Plan was discontinued. The main reasons were the complexity and costs in administrating this relatively small program. A commitment was made by the Board of
Management to find a replacement which is more practical and meaningful to all interested parties. Early in 2005, a plan was announced to create an Akzo Nobel Community Fund for projects proposed and conducted by employees at Akzo Nobel worldwide.

RESEARCH AND DEVELOPMENT

Through strong customer and market orientation, our R&D activities provide an excellent platform for sustainable business development. We are focusing on innovative approaches and technologies
that ensure continuity and profitable growth. In 2004, R&D expenditures amounted to EUR 823 million, down 7 percent from 2003. The main driver continued to be Pharma, which accounted for 63 percent of Akzo Nobels total R&D
expenditures. Total R&D staff decreased from 7,000 at year-end 2003, to 6,700 at year-end 2004. Pharmas R&D expenses were maintained at 16 percent of sales, reflecting its continuous commitment to research and development. R&D
expenditures as incurred by each of the groups are as follows:

|         
|---------
|         
|         
|         
|Pharma   
|Coatings 
|Chemicals
|         

Pharma Group

Organon

In 2004, Organon radically changed its R&D policy and structure. The organizational structure now covers the entire R&D process from the early exploratory stage up to demonstration of
Proof of Concept. This new policy focuses even more on the elaboration of new creative ideas, but always against the backdrop of sufficient output generation. Over time, this approach should fill the pipeline with innovative drug candidates.

R&D achievements help move Organon forward and the progress made in 2004 gives us confidence. Follistim®-AQ cartridge was approved in the United States, which should add to sales of this key fertility product. The asenapine program with Pfizer has made good progress. Phase III is well under way; FDA
and European EMEA submissions are planned for the first half of 2007. The approvable letter for the Implanon®birth control implant should also positively affect the second half of 2005 in the United States. There was, however, some negative R&D news, most notably the FDA rejection of our application for the antidepressant gepirone ER.

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The reorganization and restructuring programs implemented in 2003 resulted in the formation of R&D teams for our key compounds. Organon now holds a competitive pipeline with five compounds in
phase III and seventeen compounds in exploratory development (including phase II).

Intervet

In 2004 Intervet improved the infrastructure for the development of new products. Intervet received approval to market several new products in Europe during 2004, including an innovative vaccine
against Glässers disease in pigs and a novel vaccine against strangles, a painful and debilitating disease of horses. Intervet is the first company ever to obtain an EU authorization for this bacterial, genetically modified vaccine.

Following FDA approval, Vetsulinthe first insulin to treat diabetes in dogswas launched in the U.S. market. Canine and equine dewormers were introduced in the American OTC
market, which also benefited from the reintroduction of some vaccines in the companion animal health and livestock market.

Diosynth

In 2004, the number of new development contracts for the biotechnology market increased strongly. From January 1, 2005 onwards Diosynth will be integrated in the business unit Organon, which will
combine Pharmas know-how, especially in the biotechnology area.

Other

Nobilon, Akzo Nobels
  human vaccine initiative, developed according to plan during 2004. The modern
  cell culture facilities for antigen production were not only approved for compliance
  with international Good Manufacturing Practice (GMP) but already came in full
  production. The development program for the first human vaccines started with
  an injectable human influenza vaccine and, in parallel, a modified live intranasal
  vaccine in cooperation with BioDiem. These and other vaccines in development
  will be based on innovative cell culture technology, which ensures more flexible
  capacity and products of high quality and purity.

Coatings Group

In the customer-driven, technology-based organization of the Coatings business units the main driver for R&D is defining customer specific solutions. The framework for the carefully balanced
portfolio of both short-term and long-term innovation projects is set by three main prerequisites:

| | meeting environmental
      regulations                            
|- | -------------------------------------------------------------------
| | improving the performance
      of products also in color aspects  
| | defining and applying
      novel product and process technologies.

These projects are executed by the various business units in geographically spread locations, always in the vicinity of the markets they serve. Typical examples of achievements during 2004 are:

| | Decorative Coatings
      introduced a new state-of-the-art tinting system, whereby the basic principle
      is tooffer
      any color across our product range via a system of innovative colorants.       
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Car Refinishes developed
      a unique temporary paint system which can be peeled off after use.                                                                                                             
| | Marine & Protective
      opened a new R&D laboratory in the United Kingdom as a part of the businessunits
      ongoing investment in R&D facilities around the world.                                      
| | Powder Coatings continued
      to focus on innovation in the Interpon®and Restcoat®products andservices, and launched the Elements special effects range in
      Europe, for use by general trade coaters.

The focus of our long-term-innovative
  R&D programs is gradually shifting toward new generation polymer engineering,
  applying new academic science, and creatively utilizing the potential of nanotechnology.



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35

Chemicals Group

Continuous upgrading of core technologies is a key issue for all Chemicals business units in order to achieve and secure competitive market advantages. Therefore, R&D programs are
customer-oriented, maintaining an adequate balance between short-term and long-term innovation goals. Sustainability is a major driver in the R&D efforts for both current and future operations and products. These programs are executed through
R&D resources embedded in the individual business centers, with R&D units in all major markets.

To ensure access to developments in the scientific world and to be able to explore and exploit the latest technologies, business units also work together in technology programs, often including
university partners. These efforts are supported by centers of excellence. These programs include:

| | 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                                                                        
| | shortening time to
      market and/or time to production by high throughput experimentation.     

With the aim to start up and significantly grow (new) businesses, an integrated team of business and R&D professionalscalled The Innovations Unitexploits ideas, internal
competencies, and portfolio synergies. This approach has already led to promising results. R&D successes were particularly achieved in the area of process yield improvements at several production units of Polymer Chemicals, promising new
development in the areas of product quality and costs, both for vacuum and solar salt operations, improvement of energy efficiency in Akzo Nobels processes, and improvement in the efficiency of energy production by our joint ventures through
Combined Heat and Power generation.

CORPORATE SOCIAL RESPONSIBILITY

Our Commitments and Values

Akzo Nobels commitment to Corporate Social Responsibility (CSR) and Sustainable Development is reflected in our core valuesentrepreneurial spirit, personal integrity and
social responsibilityas stated in our Business Principles (see Akzo Nobels website). CSR is an essential element of the Companys corporate governance.

Our Business Principles and values are the backbone of our decision-making processes. In our daily business practice, we aim to achieve long-term economic growth, social progress, and ecological
balance. We want to be explicit about our CSR efforts and performance by making our progress transparent and measurable to all our stakeholders, inside as well as outside the Company.

Our Principles

Akzo Nobel recognizes
  that its employees, business partners, shareholders, and other stakeholders
  expect high standards of business conduct. In 2004, we concluded an extensive
  Business Principles training program for our employees, providing guidance on
  how to sustain high levels of ethical behavior, transparency, and consistency
  throughout the Company. In support of this process, the Board of

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Management issued Business
  Principles Specifications (see Akzo Nobels website at www.akzonobel.com)
  on issues like child labor, activities in politically sensitive countries, and
  a Code of Conduct for Vendors. In this context, the internal annual Letter of
  Representation to be submitted to the Board of Management was also amended.

In 2004, Akzo Nobel became
  a signatory of the UN Global Compact, established by UN Secretary General Kofi
  Anan, and a member of the World Business Council for Sustainable Development,
  which consists of 170 multinational companies that accept a leadership role
  in defining the contribution of the business community to sustainable development.
  Moreover, Akzo Nobel actively supports the guiding principles of the Business
  Charter for Sustainable Development of the International Chamber of Commerce,
  the Responsible Care®1program of the chemical industry, and the
  Coatings Care®2program of the paint and printing ink industries.

Our Planet

Commitment to health, safety, and the environment (HSE) is an integral part of our company culture. All sites have Environmental Management Systems and Occupational Health and Safety
Management Systems in place. The business units have also implemented tailored Product Stewardship Management Systems. Our Corporate Audit Protocol provides for an HSE performance audit of each Akzo Nobel site to be made at least every five years.
After five years of continued improvement in the HSE audit results, our sites in Asia Pacific have now reached the same level of audit scores as our sites in Europe and in the Americas.

We published our HSE report for 2003 on Akzo Nobels website in April 2004. In June 2005, we will publish our CSR report for 2004. In that report we will elaborate on our CSR vision,
ambitions and targets, including HSE.

Our Role in Society

Akzo Nobel companies are encouraged to support community activities and give their employees the opportunity to play an active role in societal matters, for instance through community relations
programs in areas such as education, sports, culture, arts, and healthcare as part of a long-standing Company culture. Most of our 170 sites are involved in community projects with financial or material support from the Company or with involvement
of employees as volunteers, (partly) on Company time.

We continued the Education Industry Partnership Program, the Education Fund 94, the Akzo Nobel for Young Talent Program, the Akzo Nobel Art Foundation, and the Akzo Nobel Science Award.

|1 | Responsible
      Care®is
      a registered trademark of the European Chemical Industry.    
|- | ---------------------------------------------------------------------------------------------
|2 | Coatings Care®is a registered trademark
      of the National Paint and Coatings Association.

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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 GROUP

Business Review

Pharma continued to work hard to reduce the complexity within its business units and improve operational efficiencies. U.S. dollar weakness and increasingly stiff competitionespecially
triggered in December 2002 by the loss of exclusivity of Remeron®, which until then was our leading
antidepressantmade these steps all the more important. Despite the aforementioned efforts, sales and operating income in 2004 were substantially down, also as expenses of EUR 89 million were incurred for the settlement of most of the
Remeron®cases.

Addressing the Remeron®lifecycle management issues was the
biggest challenge for Organon in 2004. Organon entered into several agreements with generic companies to help market the product while managing Remeron®SolTab®, which remains exclusive in some markets. Also, most of the key
lawsuits concerning Remeron®in the United States were settled.

R&D achievements help move Organon forward and progress was made in 2004. Follistim®-AQ cartridge was approved in the United States, which should add to sales of this key fertility product. The asenapine program with Pfizer has made good progress. Phase III is well under way; FDA and
European EMEA submissions are planned for the first half of 2007. The approvable letter for the Implanon®birth
control implant should also positively affect the second half of 2005 in the United States. There was, however, some negative R&D news, most notably the FDA rejection of our application for the antidepressant gepirone ER.

Diosynth had a very difficult year due the overall weak situation of the contract manufacturing industry. In the biotechnology part, several new manufacturing contracts were awarded, some of which
may prove significant in the future.

In January 2005, we completed the integration of Diosynth and Organon, which combines Pharmas knowhow, especially in the biotechnology area, and simplifies supply chain management.
Third-party customers of Diosynth will continue to be served under the Diosynth name.

The major news in the animal healthcare sector was the recurrence of avian flu. Intervet provided support to various governments in addressing this serious threat. Intervet also took steps to
improve operational efficiency.

Developments in the Pharma Business Units

Organon 
  Prescription DrugsSales 2004: EUR
  2,010 million; 2003: EUR 2,273 million

Despite continuing economic pressure in 2004, Organon has become fitter and better prepared for a stronger future. During the year 2004, two milestones were reached that should reinforce the
future of our human pharmaceutical business: the integration of Organon with DiosynthAkzo Nobels manufacturer of active pharmaceutical ingredientsconcluded in the beginning of 2005, and the development progress made in Phase III
with the antipsychotic asenapine in our partnership with Pfizer. We also established a

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biotechnology center foothold in Cambridge, Massachusetts, to focus on monoclonal antibody research for immunology.

In 2004, Organon changed its R&D policy and structure. The organizational structure now covers the entire R&D process from the early exploratory stage up to demonstration of Proof of
Concept. This new policy focuses even more on the elaboration of new creative ideas, but always against the backdrop of sufficient output generation. Over time, this approach should fill the pipeline with innovative drug candidates.

Sales in the important geographic areas were below the 2003 levels. The decline in sales was mainly due to increased generic competition in both the United States and Europe, particularly for the
antidepressant Remeron®. Currency effects caused a sales decrease of 3 percent, while price/volume effects were
minus 9 percent, primarily reflecting a decrease of 40 percent in the United States. We managed to continuously protect our margins without major restructuring. Operating income was substantially lower than in 2003. R&D expenses as a percentage
of sales were maintained. In 2003, Organon also benefited from the payment of EUR 88 million for the asenapine cooperation by Pfizer. In addition, expenses of EUR 89 million were incurred for the settlement of most of the Remeron®cases.

Organons main products developed as follows:

|                               |        
|------------------------------ | -------
|Millions
      of euros        |        
|                               |        
|Contraceptives                 |        
|-
        of which NuvaRing®   |        
|Remeron®(in the U.S.)          |        
|Remeron®(in rest of the world) |        
|Puregon®/Follistim®            |        
|                               | Livial®
|                               |        

In the therapeutic area Contraception, we achieved sales growth with Cerazette®and NuvaRing®, aided by stepped-up promotion efforts. The sales growth
pattern reflects increasing acceptance of NuvaRing®. In September 2004, cumulative sales (since the introduction)
of NuvaRing®surpassed the EUR 100 million mark with more than 600,000 rings sold monthly worldwide. In October
2004, the innovative, single rod progestogen implant, Implanon®, received approvable status from the
FDA for marketing in the United States. The contraceptive is scheduled to be launched on the U.S. market in the course of 2005.

In the other therapeutic areas Hormone Treatment (HT), Psychiatry, Fertility and Anesthesia, sales were down compared to 2003.

Overall market size for menopausal HT declined strongly, as a result of a number of studies that downgrade some of the perceived positive health effects of treatments. However, a rebound effect in
the market could occur in the near future, which may benefit Livial®, as its market share in the IMS registered
markets has continued to grow to almost 22 percent over the last two years.

|1 | Autonomous
      sales growth is defined as the change in sales attributable to changed volumes
      and selling prices. In this case it only excludes
      the change in sales attributable to currency translation effects. Acquisitions
      and divestments were not applicable. Reference
      is made to the remarks under Introduction on page 4.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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In the Psychiatry area, asenapinea novel psychotherapeutic medication for the treatment of psychotic and mood disordersis in Phase III clinical trials. The compound is being developed
in partnership with Pfizer. Asenapine will be administered as a fast dissolving tablet that will likely enhance compliance. Because of its unique pharmacological signature we expect asenapine to deliver strong control of psychotic and manic
symptoms, superior relief on negative and affective symptoms, and an unsurpassed tolerability and safety profile. Phase II results did not show clinically relevant side effects. Asenapine was very well tolerated. The phase III clinical development
program is on schedule and is expected to be finalized by the end of 2006. The registration file (including the U.S. New Drug Application (NDA)) is targeted for worldwide submission to the regulatory authorities in the first half of 2007.

We failed to obtain FDA approval for gepirone ER in 2004. Despite these developments, Organon remains committed to the continued development of products in the antidepressant therapeutic area.

In Fertility, we launched the Follistim®-AQ cartridge
(follitropin beta injection) in the United States in the spring of 2004. It is designed to be used only with the Follistim Pen®, an innovative pen device which facilitates accurate delivery of individualized doses of premixed follitropin beta injection. Initial U.S. sales of the highly effective and widely used prescription fertility
medication are promising. In various European countries, such as the Netherlands and Germany, Puregon®sales are
negatively affected by changes in reimbursement policies.

In Anesthesia, the investigational drug application (IND) for the anesthetic Org 25969, a unique binding agent to reverse muscle relaxation, was accepted by the FDA. With the phase II human
clinical trial in the United States and Europe completed, the compound entered phase III.

The reorganization and restructuring programs implemented in 2003 resulted in the formation of R&D teams for our key compounds. Organon now holds a competitive pipeline with five compounds in
phase III and seventeen compounds in exploratory development (including phase II).

The integration of our two human pharmaceutical businesses, Diosynth and Organon, into a single business unitunder the name Organoneffective January 2005 combines key competencies for
a targeted approach to human pharmaceutical activities. Diosynths third-party business will be continued under the name Diosynth as a reliable partner for its customers. To mark the importance of this integration and the opportunities it will
provide, Organons management team has been extended, with offices based in the United States (Roseland, New Jersey) and the Netherlands (Oss). The integration should improve supply chain management and investment decisions. Furthermore, we
will strive to reduce the complexity of our organization to aid us in our new strategy of forming partnerships.

The integration will also enable us to combine existing biotechnology activities to leverage our know-how and share technologies and skills to enhance our competitiveness in this attractive
market. The biopharmaceuticals market offers opportunities to address underserved therapeutic categories like various forms of cancer and autoimmune disorders, such as rheumatoid arthritis and multiple sclerosis. The combined biotechnology business
of Organon and Diosynth already represents 20 percent of sales revenues. The assets and know-how we have in biotechnology offer us a solid springboard to become an integrated pharmaceutical company which develops and markets drugs that are based
both on New Chemical Entities (NCE) and on New Biological Entities (NBE).

The year 2004 has been a turning point for Organon in its return to growth. Organons future will be marked by our continuing efforts to create and market prescription medicines that improve
the health and quality of human life.

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Intervet 
  Veterinary ProductsSales 2004: EUR
  1,024 million; 2003: EUR 1,010 million

With total sales of EUR 1,024 million in 2004, Intervet met expectations and strengthened its place in the global top three of animal health companies. Operating income was up on the previous
year. Intervet will continue its strategy based on autonomous growth and selected acquisitions. Intervet has a broad product portfolio and one of the largest distribution networks around the world. In 2004, we worked intensively to develop further
into a global organization to anticipate developments in the markets. We also made strong efforts to improve operating performance by streamlining our product portfolio, making investments in the manufacturing organization, and improving the
infrastructure for the development of new products. As a result of these efforts we are now well prepared to increase our business in key countries with a focus on core species and improve our bottom-line performance within the next few
years.

We generate almost 60 percent of sales in Europe and will build on our strong position in this mature market. In 2004, Intervets development in North America was characterized by growth in
key segments, notably in antiparasitics. The Latin American region seems to be continuing its recovery from the economic downturn of recent years, and we expect a more stable market there in 2005. Asia was severely affected by avian influenza
outbreaks in various countries in the region.

From Intervets broad product portfolio, pharmaceuticals showed a strong performance with significant autonomous growth. In the vaccines business Intervet further strengthened its position.
Development of aquaculture vaccines is encouraging despite challenging market conditions in the European salmon market.

Intervet received approval to market several new products in Europe during 2004, including an innovative vaccine against Glässers disease in pigs and a novel vaccine against strangles,
a painful and debilitating disease of horses. Intervet is the first company ever to obtain an EU authorization for this bacterial, genetically modified vaccine.

Following FDA approval, Vetsulinthe first insulin to treat diabetes in dogswas launched in the U.S. market. Canine and equine dewormers were introduced in the American OTC
market, which also benefited from the reintroduction of some vaccines in the companion animal health and livestock segment.

In 2004, we continued our major investment program in Boxmeer, the Netherlands, aimed at modernizing our multifunctional headquarters site and enlarging our production capacity for biological
products. We also made further investments at our manufacturing site in Salamanca, Spain. In the fall of 2004, we completed a major refurbishment program of our Milton Keynes, UK site designed to expand and equip the laboratory building obtained a
few years ago when Hoechst Roussel Vet was acquired. The new facilities enable us to bring together virology and bacteriology research groups for the development of poultry and pet vaccines. As a consequence, Intervets The Elms research site
near Cambridge was closed in the summer and a number of projects were transferred to Milton Keynes.

In December, Intervet divested its veterinary diagnostic business Dr. Bommeli AG to IDEXX Laboratories, Inc. Given Bommelis size within Intervets portfolio, the divestment had only a
slight impact on Intervets earnings.

Our logistics and manufacturing initiative launched in 2003 to implement SAP has made significant progress and should be concluded in early 2006.

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Diosynth 
  Complex Active Pharmaceutical IngredientsSales 2004: EUR
  366 million; 2003: EUR 479 million

The innovative pharmaceutical industry is being plagued by major problems, including loss of patent protection for major products, a reduced number of new product approvals, heavy competition, and
price pressure in part induced by governments. These factors adversely affect producers of active pharmaceutical products like Diosynth. In 2004, our sales declined 24 percent. Operating income fell strongly and wasincluding restructuring
chargesnegative.

In the segment of chemical active pharmaceutical ingredients, the market is still weak. Increasing competition is felt from new capacity being built, notably in China and India. Diosynths
strategy has always been to be a niche player, focusing on very specific complex products and technologies, such as steroids, peptides, and opiate analogues. In potential, the market for these products remains attractive because of their relatively
long lifecycle.

Lower captive and third-party demand forced Diosynth to reduce capacity and personnel worldwide in 2004. Capacity for less complex starting materials was cut back in line with our strategy.

In the traditional market segment for biochemicals, Diosynth managed to increase its sales and market share, particularly in heparins.

In the biotechnology market, sales were under pressure. Nevertheless, the number of new development contracts increased strongly. This should result in increased sales in the coming years because
of the time lag between technology transfer, initial process development, and commercial manufacturing of batches for clinical trials.

As of January 1, 2005, Diosynth has been integrated into Organon.

COATINGS GROUP

Business Review

Coatings operating income was slightly down on 2003, mainly due to higher restructuring and impairment charges. Coatings reaped the benefits from high volume growth, tight cost control, but was
impacted by steeply increasing raw material costs and difficult economic circumstances in Europe. All business units achieved performance gains, except for Car Refinishes, where a major restructuring program is being implemented to address this
situation. In the fourth quarter of 2004, margins were under pressure from increased raw material prices, in particular in the industrial activities. All in all, Coatings is well under way on its road map to the medium-term ROI target of 25 percent
(based on an operating income figure excluding restructuring and impairment charges).

In 2004, sales grew 5 percent due to higher volumes and prices, mainly in emerging markets, which now represent 32 percent of worldwide sales. We opened two new multipurpose Industrial Finishes
sites in China and a new Non-Stick Coatings facility in Brazil. Marine & Protective Coatings established International Paint Japan to serve Japanese and worldwide marine coatings customers also directly in this important market. Furthermore, we
completed investments in two new Powder Coatings sites in China and a new Decorative Coatings facility in Vietnam.

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During the year, we established Nobilas Claims & Fleet Solutions as a separate business unit to fully exploit the potential to become the leading provider in all areas of accident management
services.

We continued to improve our business mix by divesting eight small noncore businesses and making selective acquisitions, such as Rhenacoat coil coatings in France and BASFs joinery
business.

Our European Decorative Coatings business remained focused on extending its distribution channels by acquiring ten wholesalers. In Germanythe biggest coatings market in Europewe
stepped up efforts to improve our position by acquiring Timpe & Mock and taking a 30 percent shareholding in Peters.

To realign the business with changing market conditions, Car Refinishes announced a major restructuring program, involving 10 percent of its global workforce.

Our main challenge continues to be a balancing act between our unwavering commitment to reducing our cost base in mature markets and at the same time capturing growth opportunities in emerging
markets through a combination of selective acquisitions and organic growth.

Developments
  in the Coatings Business Units

Decorative CoatingsSales 2004: EUR
  1,911 million; 2003: EUR 1,842 million

Decorative Coatings Europe and Decorative Coatings International serve the professional and do-it-yourself markets. The Companys major brands include Sikkens®, Sadolin®, Crown®, Astral®, Marshall®, Trimetal®, Nordsjö®, Levis®, Herbol®, Vivechrom®, and Flexa®. The Companys leading building adhesive brand is Schönox®.

Decorative Coatings Europe

Market conditions failed to show sustainable improvement in 2004, reflecting sluggish GDP rates in most Western European countries. Demand for outdoor products was also adversely affected by
unfavorable weather conditions in the northern part of Europe and a low number of new housing starts. We continued to place a strong focus on improving the quality of the business by taking many initiatives to strengthen our branded businesses and
phasing out less attractive low margin businesses and weak brands with no added value. As a result of these efforts, we managed to improve margins in 2004 and offset higher costs of raw materials, packaging, energy, and transportation during the
second half of the year.

In 2004, we completed a large proportion of the comprehensive cost reduction program that was launched in 2003. This program resulted in a considerable reduction of our structural cost base,
mainly for Production and Logistics. Operating income and return on investment improved substantially.

In Trade, we recorded a satisfactory gain in operating income, assisted by a number of important strategic acquisitions of distributors, mainly in Germany. The second biggest distributor in
Germany, Timpe & Mock with 20 outlets, was acquired. We also acquired a 30 percent stake in another major German distributor, Peters with 17 outlets, in exchange for Akzo Nobels interests in distributors Beissel and Kerstin. Having service
outlets close to the painters, either owned or in partnership with independent distributors, is a key strategic objective for Trade.

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Retails sales went up in various countries. In other countries we registered a decline in sales, reflecting the discontinuation of business in less attractive private labels and low-priced
white commodity paints. Sales in added value branded products increased, aided by a comprehensive renewal of branded product offerings and improved positioning in most countries during 2004. The speedy transfer of proven products and concepts
continued and bolstered our brand building objectives. While overall sales declined, Retail achieved a considerable improvement in operating income and financial ratios.

In Specialties, we were able to duplicate the previous years high performance level. We recorded promising sales in the new EU countries, where we strengthened our presence. In the third
quarter we acquired the Joinery business of BASF Coatings, bolstering our leading position in that market segment.

We successfully completed the first phase of the rollout of our new state-of-the-art tinting system and started the second phase. The basic principle of this new system is to offer any color
across our product range via a system of innovative colorants. A limited number of base paints will reduce the complexity costs for our distributors, shops, and sites. Via this optimized system we can also offer better and more reliable accuracy of
colors and product qualities that will meet future regulations for volatile organic compounds (VOC). As of 2007 (first phase) and 2010 (second phase), the new EU VOC directive will be fully effective.

Decorative Coatings International

Across the board, Deco International registered good volume growth and improved its operating income. The margins show a mixed picture, with strong downward pressure, particularly toward the end
of the year. Strict cost control resulted in much lower costs relative to sales than in the previous year. The number of employees was lower, while business showed strong growth. As a consequence, capital turnover also improved, resulting in a
substantially higher return on investment.

The Eastern European business continues to develop favorably, particularly in Russia and Ukraine but also in the Baltic states where we see steady growth. Restructuring programs in Hungary and
Poland led to a significant decrease in headcount and costs. Combined with increased sales, these efforts resulted in distinctly higher profitability. Building Adhesives also stepped up its activities in this part of Europe.

Asia Pacific continues to show strong double digit volume increase. The first batches have been produced in the newly constructed factories in China and Vietnam.

Our wood care products niche strategy for North America and Argentina has once more proven to be a successful concept with robust volume growth, in particular in Argentina. Brazil also showed an
improvement in the course of business in the second half of 2004.

The North African activities continue to operate at a healthy level with increased volumes.

In Turkey fierce competition depressed margins. Nevertheless, we achieved a huge increase in market share. The market in Greece was particularly buoyant and generated excellent results until the
Olympics, with no dramatic decrease afterwards.

Building Adhesives managed to increase its volumes in static markets, such as Germany, resulting in a substantial increase in profit margins and returns.

We continued to place
  a strong focus on product stewardship issues and believe that we have now reached
  a good standard.



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Worthy of note is that
  our unit in Brazil has logged more than 8 million hours without any lost time
  due to injuries.

We are confident that we have an excellent platform for further geographic development and growth in volume and profitability.

Industrial ActivitiesSales 2004 EUR
  1,592 million; 2003: EUR 1,489 million

Akzo Nobels industrial activities include two global business units: Industrial Finishes and Powder Coatings.

Industrial Finishes

As a result of successful top line initiatives, geographic expansion, bolt-on acquisitions, and improved economic conditions, Industrial Finishes delivered substantial growth, which offset the
impact of depressed margins brought on by rising raw material costs. On balance, operating income increased significantly, mainly due to lower restructuring and impairment charges.

We continued to invest in the frontier markets of China, India, Brazil, and Eastern Europe. In addition, production and logistics capabilities in lower growth geographic markets were reshaped in
2004. Complementing strategic growth, we invested in our ongoing R&D activities to provide customers with a stream of products to help them become more efficient and/or differentiate their products in the ever-increasingly competitive global
economy.

Combining our intense customer focus, decentralized organizational structure, global reach, and Akzo Nobels expansive technology base, we remain very competitive in the markets in which we
participate.

Powder Coatings

In 2004, Powder Coatings delivered a solid financial performance with considerably improved operating income and return on investment. This was the result of a significant increase in sales
combined with tight cost control and a selective investment approach.

We extended our geographic presence in all areas of operation, notably by constructing two new Powder Coatings plants in China and by opening a Brazilian plant for Non-Stick Coatings. Our
Cromadex®organization continued to expand its distribution network throughout Europe with branch openings in
France and Germany. In South Korea we integrated the management of our two powder businesses and closed the LG facility, thus reducing costs and gaining in operational efficiencies.

In Europe we had an outstanding year. Increased efficiencies in manufacturing and operations combined with strong sales growth in Southern Europe, Eastern Europe, and Turkey produced excellent
improvement in operating income. In Asia, we achieved the planned strong growth in salesespecially in China. In America, we continued to improve operations and strengthened the sales and marketing approach.

Our Cromadex®distribution operation maintained its outstanding financial performance, while
  the Non-Stick Coatings business achieved a notable improvement in operating
  income.



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We continued to focus
  on adding value through innovation in our Interpon®and Resicoat®products and services. We achieved our first commercial sales of UV-curing powder
  coatings for PVC flooring and launched the Elements special effects
  range in Europe for use by general trade coaters.

We have invested in building and strengthening our global management team and the organizational structure of our businesses. We have reshaped our strategy for the coming years, identifying
opportunities where our strong customer focus, combined with an emphasis on innovation, can deliver maximum value for our business and for our customers.

Car RefinishesSales 2004: EUR
  927 million; 2003: EUR 880 million

2004 was a challenging year with the operational side of our business bearing up well in adverse market conditions, but with profitability suffering from too high costs. Volume steadily declined
in mature markets and showed slow but steady growth in developing markets. Operating income was clearly down on the previous year. We energetically stepped up our cost containment efforts to align our cost structure with these market conditions. The
restructuring program announced in July started to yield results in the course of 2004 but will not have its full effect until 2006.

In Car Repair we launched a worldwide retail brand approach to complete our full service range of products to the market. Our services brand Sikkens®aims at total bodyshop profitability. Our product brand Lesonal®aims at product performance. We also have a selective number of regional brands for the retail segment. Within our Automotive Aftermarket
we achieved a steady stream of approvals and global deals with major car manufacturers.

For the services segment, we introduced Sikkens®e-Benchmarking, a web-based business analysis system. This easy-to-use benchmarking tool provides rapid analyses of a bodyshops performance compared to a variety of core groups, together with access to advice on how to improve profitability.

Our Commercial Vehicles business under the dedicated Sikkens®Autocoat®BT®brand grew as planned, with all regions contributing to growth. We also reached a number of global agreements with truck and bus companies.

In Automotive Plastic Coatings we increased our focus by changing from a regional organization to a global organization, with dedicated management but with shared key disciplines. In this way we
were able to maximize both differentiation and synergy. We concluded a cross-license agreement with Origin-Electric to improve access to the Japanese market by benefiting from their approvals for automotive plastic coatings.

On the business development side, we developed a unique temporary paint system which can be peeled off after use. Known as Maskin®, the product can be applied to any nonporous surface, such as a vehicle body or windows, without risk of damage to the original finish.

Marine & Protective
  CoatingsSales 2004: EUR
  875 million; 2003: EUR 832 million

Marine & Protective
  Coatings is the worldwide leader in High Performance Coatings Solutions for
  the Marine, Heavy Industry, Pleasure Boat, and Aerospace markets.

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2004 resulted in new record
  levels of operating income despite a weaker U.S. dollar and significant raw
  material cost increases during the year. Growth was solid in all regions.

International®Marine Coatings benefited from a high level of
newbuilding of ships, in particular in Korea and China. Dry-docking activity remained high as shipyards are fully committed until 2007. Full business operations were started in Japan from November 2004.

International®Protective Coatings maintained good levels of
profitable growth led by organic expansion in the United States, China, and Central/Eastern Europe. Sales development of Chartek®fire proofing materials remained at a most satisfactory level during the year.

The Yacht Coatings business further improved its performance in the key markets in Europe and the United States with the International®/Interlux®brands. The Awlgrip®business also achieved excellent results. Growth
continued in the Asia Pacific region.

In Aerospace Coatings, Akzo Nobel continued to challenge the difficulties in the airline industry, achieving growth and improved profitability in both Europe and the United States. Results for
2004 were much improved on the previous year.

The growth rate available in developing territories is reflected in our commitment to investment through balanced organic and acquisitive growth.

In April, Marine & Protective Coatings opened a new R&D laboratory in the United Kingdom as part of the business units ongoing investment in R&D facilities around the world.

Nobilas  Claims & Fleet Solutions

Nobilas provides accident management services to insurers, corporate fleet owners, car leasing, and rental companies. The first year in which we focused on building the organization and proving
the concept progressed according to plan. Accelerated growth is the objective for next year.

In June, the business unit acquired UK-based AON Motor Accident Management company.

CHEMICALS GROUP

Business Review

Akzo Nobel Chemicals experienced substantial profit growth triggered by gains on the divestments. Global demand increased and results further benefited from cost savings and manufacturing
efficiency improvements, partially offset by the impact of increased raw material and energy prices.

During the year the selected
  divestments of Catalysts, Phosphorus Chemicals, and Coating Resins were successfully
  carried out. The divestment program generated proceeds of approximately EUR
  1 billion, which is above the annual sales of these businesses and reflects
  their solid value. See Note 22 of the Notes to the Consolidated Financial Statements
  for the effects of discontinued operation accounting under US GAAP.

Key investment projects
  in 2004 included the EUR 50 million Pulp & Paper chemical factory island
  within the Veracel paper mill complex at Eunapolis in Brazil and the start of
  the EUR 160 million relocation of Chlorine

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and MCAA plants from
  Hengelo to Delfzijl. This project is supported by the Dutch government in order
  to end regular chlorine transports by rail in the Netherlands.

Our investment in China now comprises seven factories covering the Polymer, Paper and Functional Chemicals market segments. Our combined chemicals sales in China in 2004 aggregated EUR 130 million
and are growing rapidly.

2004 was a year of streamlining, restructuring, and consolidation of the R&D activities in and across Chemicals business units to improve the effectiveness of operations. Despite these
organizational changes, exciting breakthrough technologies and products were developed.

We are actively pursuing a systematic innovation approach to add value to the Chemicals businesses. With the aim to start up and significantly grow (new) businesses an integrated team of business
and R&D professionalscalled The Innovations Unitexploits ideas, internal competencies, and portfolio synergies. This approach has already led to promising results.

New Strategic Focus

As a result of a strategic review carried out in the second half of 2004 we will, in 2005, further streamline the Chemicals portfolio in order to competitively realign the business for growth,
profitability, and leadership positions in selected markets. These efforts will result in a smaller portfolio that is stronger, creates more value, and is better structured to meet our financial expectations. The Chemicals activities will be
concentrated in five business units: Pulp & Paper Chemicals, Polymer Chemicals, Surfactants, Functional Chemicals, and Base Chemicals (the latter will comprise the Chlor-Alkali, Electrolysis Salt, and Energy businesses). We are committed to
ensure that leading positionswhich are key to our new strategywill be established or consolidated. Expansion in growth markets such as China will also be prioritized. As a consequence of this new focus, the Company intends to divest
several businesses that do not fit this new strategy, including Ink and Adhesive Resins, Oleochemicals, Salt Specialties, PVC Additives, Solar Salt Australia, and Methyl Amines/Choline Chloride. All the activities earmarked for divestment represent
a total of around EUR 700 million in 2004.

Developments
  in the Chemicals Business Units

Pulp & Paper
  ChemicalsSales 2004: EUR
  980 million; 2003: EUR 1,008 million

Pulp & Paper Chemicals (Eka Chemicals) registered increasing demand for its pulp and paper chemicals, reflecting stronger growth of paper and board production in major markets. However, the
gain in operating income, with a mixed picture for the various products and regions, was primarily driven by lower costs.

During the year Eka Chemicals further strengthened its concept of better and more efficient chemical processes. Our development of industrial IT applications and centralized control delivers
higher quality performance and reduced supply chain and production costs. It also enables us to grow as we take a larger responsibility in our customers value chain.

The European paper chemicals
  industry is running at high capacity utilization, and this positive trend is
  expected to continue into 2005. Higher power prices in Europe negatively impacted
  our production costs. Performance of our hydrogen peroxide activities in the
  European market is steadily improving, reflecting strongly risen demand, which
  we meet by increasing production capacity.



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North America showed
  strong output growth for all paper grades, while imports decreased. Ekas
  operations went through a major restructuring phase during 2003, which continued
  to have effects on cost levels in 2004. The weaker dollar created better market
  conditions, which generated better results for chlorate and paper chemicals,
  particularly in the retention segment, where the use of new systems for wood-containing
  paper was a big success.

Growth in South America was fast, especially in Brazil and Chile. Our expansions in Brazil, in particular the EUR 50 million Chemical Island at the new Veracel mill, are on schedule. This well
positioned plant and our new silica sol plant in Rio will be operational in spring 2005. High freight and duty costs for imported chemicals had a negative impact on the results. Our sales in the Andean region are increasing.

Paper chemicals developed strongly in China and Indonesia. In China, the rapidly expanding packaging segment brings opportunities for sales growth, particularly in retention and sizing. Agreements
with major customers improved performance toward the end of the year.

Surface ChemistrySales 2004: EUR
  863 million; 2003: EUR 858 million

Despite difficult market circumstances with rising raw material prices and the weak U.S. dollar, Surface Chemistry improved its overall operating income in 2004 aided by cost reduction and volume
growth. Market growth led to tighter capacity utilization in the second half of the year, allowing us to pass on higher raw material costs in selling prices.

Our Surfactants business registered improved results, mainly attributable to cost reduction programs, including the closure of the Littleborough site in the United Kingdom. These programs are
still ongoing and will contribute to results in 2005. However, especially in the Americas, margins suffered from higher raw material prices and energy costs, while the product mix developed unfavorably. Selling prices are being increased to
compensate for higher costs. Overall, Surfactants made another big step toward lifting profitability to target level. In March 2004, the new quat production facilities in Singapore were opened, underscoring Surfactants commitment to the Asian
growth region.

Oleochemicals results ended lower than in 2003, as new capacity in the Asian region exerted a downward pressure on margins. Oleochemicals has set its focus on higher margin products based on
proprietary technology, as is evidenced by new product introductions in the food segment.

Cellulosic Specialties continued to grow at above GDP rates driven by the volume gain of its Bermocoll®products (paint and building applications). The CMC range also recovered from the previous years dip. Results improved significantly despite the weak U.S. dollar. In 2004, Cellulosic Specialties
launched a program to improve efficiency at its production site in Örnsköldsvik, Sweden.

Expancel®
  (transferred from the former business unit Industrial Products) continued its
  growth path for Thermoplastic Microspheres, although increased competition caused
  some pressure on margins in 2004. Growth
  is driven by geo expansion as well as by new product applications. New drying
  capacity came on stream in the last quarter of 2004.

Surface Chemistry has
  announced that it is to divest its joint venture SEKAB in Sweden, which specializes
  in the production of ethanol-based bio-fuels.



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Functional ChemicalsSales 2004: EUR
  613 million; 2003: EUR 604 million

Functional Chemicals experienced a strong year amid overall flat sales and rising raw material prices. Lower restructuring charges, the benefits of these restructuring efforts, and incremental
investments in capacity resulted in significantly improved operating income.

In spite of a steep rise in raw material prices, Ethylene Amines benefited from its capacity improvement investments and posted excellent growth in sales and operating income, underlining its
strong worldwide position in this tight market. Aided by further improvement of our operations in China, lower costs and superior technology, the results of our monochloroacetic acid business showed a solid gain over the previous year. As a
consequence of the decision to eliminate regular chlorine transports by rail, the investment to relocate the MCAA plant from Hengelo to Delfzijl in the Netherlands was approved.

The creation of a production joint venture in the United States with BASF resulted in further efficiency improvements for the North American Chelates operations. Coupled with improvements in the
marketplace, this led to significantly better results.

Higher sales of sodium hydrosulfide and sulfuric acid failed to offset the effects of difficult market conditions in carbon disulfide and thiocyanates, resulting in lower results for Sulfur
Products. The inability to pass on higher raw material prices in a weak market led to disappointing performance by our PVC Additives business. However, major restructuring of sales and marketing activities was completed and should bring substantial
improvements.

Base ChemicalsSales 2004: EUR
  575 million; 2003: EUR 544 million

Despite higher restructuring charges and record low caustic prices in the second quarter, operating income was virtually unchanged from last year, mainly reflecting a healthy chlorine business,
higher volumes, and continuing cost reductions.

In 2004, the EU fully approved the Dutch governments financial compensation for the relocation of the Chlorine and MCAA plants from Hengelo to Delfzijl in compliance with the covenant
concluded with the authorities to cease regular chlorine transports in the Netherlands.

Capacity at the Rotterdam chlorine plant will be increased from approximately 500,000 to 600,000 tons per annum to compensate for the discontinuation of the transports to Rotterdam and to meet
future growth of our local customer base. After this expansion the Rotterdam plant will be one of the largest in the world.

Plans have been approved to reduce the number of manufacturing sites from seven to five in the coming years and to close three chlorine plants based on outdated mercury and diaphragm technology,
which includes the plant in Bohus, Sweden.

As a consequence of these
  extensive restructuring processes our technology and cost base will be significantly
  improved.

In 2004, we substantially
  reduced our workforce, and even greater reductions are foreseen for the coming
  three years.



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Spurred by healthy demand,
  the results of 30 percent joint venture Methanor were at a reasonable level
  despite high energy prices.

Polymer ChemicalsSales 2004: EUR
  494 million; 2003: EUR 492 million

Sales were near the 2003 level, despite the generally weak U.S. dollar. Two thirds of our global sales are U.S. dollar-related. Globally, we continued to benefit from strong demand in the polymer
industry. The required margin improvements for our high polymer organic peroxide products in the Americas have not materialized yet. Price increases have been announced and are starting to be implemented.

Early in the year the business unit organization was changed from a regional to a global product line setup. This aligns our business better with the worldwide polymer industry as well as with the
organizational trends of our major customers.

Operating income was down substantially from the previous year, as higher restructuring and impairment charges were only partially offset by the first results of these cost savings and
restructuring efforts. As part of these efforts, we announced the move of our organic peroxide production from Emmerich, Germany, to Tianjin, China, and to Los Reyes, Mexico. Other decisions we announced in the course of the year included the
discontinuation of part of our production in Itupeva, Brazil, Seneffe, Belgium, and our R&D activities in Dobbs Ferry, New York.

The antifouling and suspending agent products we acquired in 2003 performed well in Europe, but the introduction of these products in other parts of the world is making slower progress than
anticipated.

Our growth in Asia Pacific in general and in China in particular is well on track. The new ketone peroxide and dimethyl phthalate plant in Tianjin, China, part of our majority-owned KANP joint
venture, came on stream in the second quarter of 2004. In other areas, like cross linking peroxides produced in Ningbo, China, we posted double digit sales growth.

Our new business development projects made significant progress on their path to commercial success. In particular, the developments in high purity metal organics, continuous dosing technology for
PVC production, and metal deposition chemicals are very promising.

We also recorded successes in R&D, in particular in the area of process yield improvements at several of our production units.

SaltSales 2004: EUR
  274 million; 2003: EUR 267 million

Higher sales were offset
  by a number of one-time charges and higher energy prices causing operating income
  to remain below the 2003 level. Capacity utilization rates at chemical customers
  were highthroughout
  the year. In our specialties business, stringent cost control and focus on best
  fitting markets continued to bring income gains.

We expect global salt
  demand to show continued growth in the coming years. Salt for the chemical market
  in Northwestern Europe and Asia Pacific will show growth above GDP rates. In
  Hengelo, the Netherlands, we made a 400,000 tons-per-annum addition to our production
  capacity, which is likely to be the first in a succession of capacity expansions
  in the coming decade.



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The solar salt facility
  in Onslow, Western Australia, registered its third consecutive year of more
  than 20 percent volume growth. We expect to achieve full capacity utilization
  next year.

Technology and research efforts show promising new developments in the areas of product quality and costs, both for our vacuum and solar salt operations.

EnergySales 2004: EUR
  175 million; 2003: EUR 171 million

The Dutch government
  support scheme for the efficient cogeneration of CO2-free
  electricity contributedpositively
  to operating income. Our aim is to stimulate the improvement of energy efficiency
  in Akzo Nobels processes and improve the efficiency of energy production
  by our joint ventures through Combined Heat and Power generation.

Nonconsolidated Company  Flexsys

Operating income of this 50 percent-owned rubber chemicals joint venture was better than in the previous year, which was principally caused by somewhat better economic conditions and the favorable
effects of cost savings and production restructuring programs. The Nitro, West Virginia, Primary Accelerators Plant was closed down at the end of March 2004.

SOURCES AND AVAILABILITY OF RAW MATERIALS

Raw materials essential to our business are purchased in the normal course of business from numerous suppliers worldwide. Important raw materials or auxiliary materials for the Companys
production processes are salt, petroleum and petroleum derivatives, natural gas, titanium dioxide, and electricity. In principal, these materials are widely available from multiple sources. No serious shortages or delays were encountered in 2004 and
none are expected in 2005.

Although Akzo Nobel aims to use its purchasing power and long-term relationships with suppliers to acquire raw materials and their constant delivery at the best conditions, the Company cannot
assure that it will always 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 or the Companys
requests.

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.

PharmaThe 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

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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 Internet is a unique tool for establishing contacts between the Company, the prescribers of its products, and the end users.

For Diosynth, the producer of active ingredients for the pharmaceutical industry, some 60 percent of the sales are to third parties, mainly innovators in the United States and the European
Union.

CoatingsCoatings 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.

ChemicalsChemical 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s intellectual property portfolio includes numerous patent applications and patents, trademark applications and registrations, domain name registrations and trade secrets, which
all help to protect its products, processes, goodwill, and know-how. Where appropriate, the Company seeks intellectual property rights in relevant regional markets. The Company monitors its competitors, enforces its own intellectual property rights
whenever and wherever advisable and challenges third party intellectual property rights and claims, whenever appropriate. Intellectual property agreements are in force with many of the Companys employees, and there are a numerous
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 a number of international and national codes of best practice appropriate to its business.

Besides the normal regulatory
  framework for chemical companies, the Company is subject to more extensive regulations
  for the veterinary and human pharmaceutical industry1.
  The international

|1 | In this section,
      the term pharmaceutical industry encompasses both human and
      animal healthcare, unless specifically indicated.
|- | --------------------------------------------------------------------------------------------------------------------------------------------

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pharmaceutical industry
  is highly regulated. National and supranational regulatory authorities administer
  numerous laws and regulations regarding the testing, approval, manufacturing,
  import, labeling, and marketing of drugs, and also review the safety and effectiveness
  of pharmaceutical and biological products. Further regulations exist on the
  non-clinical and clinical development of pharmaceutical and biological 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 introduction of new pharmaceutical products generally entails a lengthy regulatory approval process. Of particular importance is the requirement in all major countries that products be
authorized or registered by governmental regulatory authorities 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 vaccines, and a corresponding increase in the expense of product development. To register such a product, a registration file containing evidence regarding 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, labeling, and marketing 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 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 also covers all subjects tested in clinical trials. Very similar requirements apply to field
trials for veterinary drugs and to vaccine registrations with the USDA.

If the FDA or the USDA, as the case may be, approves a new drug application, the new becomes available for physicians or veterinarians to prescribe.

Thereafter for human drugs, the drug license owner must submit periodic update reports to the FDA, including any cases of adverse reactions. For some drugs, 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
  Agency (EMEA) for review and a scientific opinion by its Committees.
  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. The EMEA coordinates the pharmacovigilance activities
  within the EU. In the EU, pharmaceutical companies have to comply with GLP,
  GMP, and GCP regulations in order to develop, produce and test pharmaceutical
  and biological products.

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In Japan, applications
  for marketing authorization are made to the Pharmaceutical and Medical Devices
  Organization (PMDA). After a check on GLP and GCP compliance and
  a reliability review of the data, the PMDA performs a scientific review of the
  NDA application and prepares a review report. This review report is forwarded
  to the Ministry of Health, Labor and Welfare (MHLW). The review
  report of the PMDA 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 certain 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 costs could increase pricing pressures. As
of January 1, 2006, Medicare pay for outpatient pharmaceutical coverage for beneficiaries and 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 coverage of outpatient pharmaceuticals 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 human pharmaceutical and biological 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 human
  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.
  For veterinary products, a similar procedure applies whereby the Ministry of
  Agriculture, Forestry and Fisheries is authorized to issue licenses

C. ORGANIZATIONAL
  STRUCTURE

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

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55

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; Morrisville, North Carolina; and DeSoto, Kansas.

The major Coatings sites are based in Montataire, France; Sassenheim, the Netherlands; Cologne, Germany; Barcelona, Spain; Cernobbio, Italy; Malmö, Sweden; Darwen and Hull, United Kingdom;
Houston, Texas; Columbus, Ohio; High Point, North Carolina; Nashville, Tennessee; São Paulo, Brazil; Suzhou Jiashan, and Tianjin, China; Chilseo, Republic of Korea; and Melbourne, Australia.

For Chemicals, the major production sites are located in Delfzijl, Hengelo, and Rotterdam, 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 3.5 billion at December 31, 2004. The book value of property, plant
and equipment financed by installment buying and leasing was EUR 44 million at December 31, 2004. 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.

Item
  5.OPERATING
  AND FINANCIAL REVIEW AND PROSPECTS

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 22 of the Notes to the Consolidated
  Financial Statements of Akzo Nobel.

Any trends, uncertainties,
  demands, commitments, or events that are reasonably likely to have a material
  effect on the Companys net sales, income from operations, profitability,
  liquidity or capital resources, or that would cause the reported financial information
  not necessarily to be indicative of future operating results or financial condition,
  if any, are discussed in the relevant chapters below. For developments in the
  first

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56

quarter of 2005 reference
  is made the Report for the 1stQuarter of 2005, which has been furnished on Form 6-K to the Commission, which
  is incorporated by reference into this Annual Report.

2004 COMPARED TO 2003

Net income was up 42
  percent to EUR 856 million, which is EUR 3.00 per share (2003: EUR 2.11). The
  main reason for the increase is the gain on the divestments of Catalysts, Phosphorus
  Chemicals, and Coating Resins. In addition, earnings of Coatings and Chemicals
  benefited from growth and cost savings, partially offset by increasing raw material
  and energy prices. As expected Pharmas results were down due to the loss
  of Remeron®sales, while 2003 earnings benefited from the initial payment of EUR 88 million
  from Pfizer for the asenapine cooperation. In 2004, the Company recognized charges
  of EUR 199 million for the Remeron®and antitrust cases.

Sales, Cost, and
  Income

|                                                     |                                    
|---------------------------------------------------- | -----------------------------------
|                                                     | Condensed
      statement of income
|Millions
      of euros                              | 2004                               
|                                                     |                                    
|Net sales                                            | 12,688                             
|Cost of sales                                        | (6,851                             
|                                                     |                                    
|                                                     |                                    
|Gross margin                                         | 5,837                              
|Selling, R&D,
      and G&A expenses, other results  | (4,648                             
|Restructuring and
      impairment charges           | (199                               
|Antitrust and Remeron®court cases                    | (199                               
|Results on divestments                               | 509                                
|                                                     |                                    
|                                                     |                                    
|Operating income                                     | 1,300                              
|Financing charges,
      net                         | (123                               
|                                                     |                                    
|                                                     |                                    
|Operating income
      less financing charges        | 1,177                              
|Income taxes                                         | (298                               
|                                                     |                                    
|                                                     |                                    
|Earnings of consolidated
      companies after taxes | 879                                
|Earnings from nonconsolidated
      companies        | 12                                 
|                                                     |                                    
|                                                     |                                    
|Earnings before minority
      interest              | 891                                
|Minority interest                                    | (35                                
|                                                     |                                    
|                                                     |                                    
|Net income                                           | 856                                
|                                                     |                                    

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57

Sales

Net sales in 2004 were EUR 12.7 billion, down 3 percent on the previous year. Autonomous (sales volume and price) growth was 2 percent, which did not fully compensate the negative effect of
currency translation (3 percent) and of divestments and acquisitions (on balance 2 percent).

|                   |      
|------------------ | -----
|In
        percent | Total
|                   |      
|Pharma             | (9   
|Coatings           | 2    
|Chemicals          | (4   
|Akzo Nobel         | (3   
|                   |      

The negative currency translation impact predominantly related to the weakening of the U.S. dollar and various Asian currencies.

Acquisitions principally concerned Timpe & Mock (deco wholesaler in Germany) and AON Motor Accident Management (United Kingdom), while divestments mainly related to Impregnated Papers sold in
2003 and Catalysts and Phosphorus Chemicals sold in 2004.

Operating Income

Operating income was EUR 1,300 million, on balance 22 percent up on 2003. Return on sales was 10.2 percent, compared with 8.2 percent in 2003.

|                        |                                              
|----------------------- | ---------------------------------------------
|                        |                                              
|                        |                                              
|Millions
      of euros | Operating
      income
      for
        2004
|                        |                                              
|Pharma                  | 398                                          
|Coatings                | 360                                          
|Chemicals               | 762                                          
|Other                   | (220                                         
|                        |                                              
|Akzo Nobel              | 1,300                                        
|                        |                                              

All groups felt the impact of weaker key currencies, but benefited from lower pension costs.

Pharmas earnings
  were down on the previous year, when the initial Pfizer payment of EUR 88 million
  for the asenapine cooperation was included. The income decline due to the loss
  of the Remeron®market exclusivity in the United States continued but bottomed out in the latter
  part of the year. In the rest of the world, Remeron®held up in the first part of the year, but toward the end sales started to erode.
  Sales of Puregon®and Livial®were also lower, but picked up again in the fourth quarter of 2004. The impact
  of these

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58

sales declines was partially
  offset by cost savings. Diosynths result was significantly down to break-even
  level. On balance, charges for restructurings, impairments, and court cases
  were lower than in 2003.

Coatings benefited from 5 percent autonomous growth and its major cost-saving programs but was also impacted by significantly increasing raw material prices. On balance restructuring and
impairment charges were somewhat higher than in 2003.

Chemicals also benefited from 5 percent autonomous growth and its major cost-saving programs but also felt the impact of significantly increasing raw material and energy prices. Chemicals in
addition achieved a substantial nonrecurring gain on the divestment of Catalysts, Phosphorus Chemicals, and Coating Resins.

The decline under Other mainly related to charges for the antitrust cases the Company is involved in.

R&D
  expensesR&D expenses were EUR
  823 million, which is 6.5 percent of sales. For 2003, this was EUR 887 million
  and 6.8 percent, respectively. Pharmas R&D expenses were maintained
  at 16 percent of sales, reflecting its continuous commitment to research and
  development. In 2004, Organon again spent 19 percent of its sales on research.
  For Coatings and Chemicals this ratio remained unchanged at some 3 percent.

Financing
  Charges, netFinancing charges decreased
  from EUR 166 million in 2003 to EUR 123 million in 2004, reflecting the substantial
  reduction of net borrowings as a result of proceeds from divestments. In addition,
  due to the weaker U.S. dollar, interest denominated in this currency translated
  into lower financing charges.

Income
  TaxesThe income tax charge for
  2004 amounted to 25 percent, compared with 28 percent in 2003 reflecting the
  somewhat changed geographic distribution of the Companys results, and
  the fact that a significant portion of the gains on divestments was non taxable.

Earnings
  from Nonconsolidated CompaniesEarnings from nonconsolidated
  companies at EUR 12 million were up on 2003 (EUR 7 million). Flexsys did significantly
  better than in 2003, which more than offset the loss of earnings from the divested
  Catalysts joint ventures. Earnings of the Companys remaining 20 percent-stake
  in its former Fibers activities were lower, while the Turkish printing inks
  joint venture Dyo Sadolin did better.

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59

Restructuring
  and Impairment ChargesThe restructuring and impairment
  charges in 2004 consists of the following elements:

|                           |     
|-------------------------- | ----
|Millions
      of euros    |     
|                           |     
|Asset impairments
      at |     
|- Pharma                   | (31 
|- Coatings                 | (16 
|- Chemicals                | (27 
|Restructurings at          |     
|- Pharma                   | (20 
|- Coatings                 | (38 
|- Chemicals                | (63 
|- Other                    | (4  
|                           |     
|Total                      | (199
|                           |     

Pharmas restructuring charges mainly concern impairment and closure costs of the Organon production site in West Orange, New Jersey, and other worldwide cost reduction programs.

Coatings restructuring charges predominantly concern the rationalization programs at Car Refinishes.

Restructurings and impairments at Chemicals relate to the closure of a Surface Chemistry site in the United Kingdom, the chlorine production in Bohus, Sweden, and staff cuts at Polymer Chemicals
in Germany.

As can be noted from the above, impairment charges mainly relate to assets on sites (to be) closed. The impairment was determined based on the estimated fair value at which the assets are expected
to be sold. Assets, for which it is not possible to be sold, were written down to zero.

Antitrust
  and Remeron®Court CasesMainly due to the recently
  imposed fines by the European Commission for breaching competition laws in the
  markets for monochloroacetic acid (EUR 84 million) and choline chloride (EUR
  21 million), the Company added EUR 110 million to the provision for anti-trust
  cases. The Company has appealed the fines imposed.

Settlement of most of the Remeron®cases resulted in a charge
of EUR 89 million.

Reference is made to Item 8 Financial Information, for further descriptions on the anti-trust and Remeron®cases.

Results
  on DivestmentsThe gain on divestments
  in 2004 mainly related to Catalysts, Phosphorus Chemicals and Coating Resins.
  The gain in 2003 predominantly concerned the divestment of Chemicals property
  in the United Kingdom.

Restructuring
  of ActivitiesProvisions for restructuring
  of activities comprise accruals for certain employee termination benefits and
  for costs which are directly associated with plans to exit specific activities,
  primarily related to costs associated with closing down facilities.

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60

|                                                          |                           
|--------------------------------------------------------- | --------------------------
|Millions
      of euros                                   | Termination
      benefits
|                                                          |                           
|Balance at December
      31, 2002                        | 182                       
|                                                          |                           
|Changes in exchange
      rates                           | (4                        
|Additions charged
      to income as restructuring charge | 149                       
|Other additions charged
      to income                   | 14                        
|Utilization                                               | (133                      
|Divestiture                                               |                           
|                                                          |                           
|Balance at December
      31, 2003                        | 208                       
|                                                          |                           
|Changes in exchange
      rates                           |                           
|Additions charged
      to income as restructuring charge | 95                        
|Other additions charged
      to income/transfer between  |                           
|categories                                                | (12                       
|Utilization                                               | (119                      
|Divestiture                                               | (2                        
|                                                          |                           
|Balance at December
      31, 2004                        | 170                       
|                                                          |                           

2004 movementsFor the additions charged
  to income reference is made to the disclosure under restructuring and impairment
  charges in 2004 compared to 2003. The additions to termination benefits involve
  approximately 1,840 jobs at various sites all over the world.

During 2004, the total amount paid and charged against the related liability amounted to EUR 119 million for termination benefits and EUR 53 million for exit costs. These payments and charges all
concerned the execution of plans decided upon during 2004 and prior years.

The Company has a sizeable number of restructuring programs involving personnel reductions at numerous sites all over the world, none of which are individually significant to the consolidated
financial statements of the Company.

2003 movementsFor the additions charged
  to income reference is made to the disclosure under restructuring and impairment
  charges in 2003 compared to 2002. The additions to termination benefits involve
  approximately 2,165 jobs at various sites all over the world.

During 2003, the total amount paid and charged against the related liability amounted to EUR 133 million for termination benefits and EUR 86 million for exit costs. These payments and charges all
concerned the execution of plans decided upon during 2003 and prior years.

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61

Number
  of employeesThe number of employees
  developed as follows:

|                                |                                
|------------------------------- | -------------------------------
|Number
      of
      employees | December
        31,
      2004
|                                |                                
|Pharma                          | 19,390                         
|Coatings                        | 29,070                         
|Chemicals                       | 11,890                         
|Others                          | 1,100                          
|                                |                                
|Akzo Nobel                      | 61,450                         
|                                |                                

The Company was well prepared to face the multitude of challenges of the year. Ongoing restructuring programs were vigorously pursued, and various new programs were started to address pressure on
our earnings. As a result, our workforce was reduced by 2,650 people. Since the start of our major program in 2001, our restructuring actions have resulted in a headcount reduction by almost 9,000.

Our strong focus on restructuring, costs, and cash did not prevent us from investing in new growth opportunities in high growth regions. We are actively participating in attractive growth in Asia,
particularly China, and in Eastern Europe.

Sales and Operating
  Income by ActivitiesEarnings development per
  group was as follows.

|                                         |                
|---------------------------------------- | ---------------
|                                         | Net
      sales
|Millions
      of euros                  | 2004           
|                                         |                
|Pharma                                   | 3,246          
|Coatings                                 | 5,249          
|Chemicals                                | 4,305          
|Miscellaneous products,
      intragroup |                
|deliveries,
      and eliminations       | (112           
|                                         |                
|Total                                    | 12,688         
|                                         |                



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62

Pharma Group

|                     
|---------------------
|Business
        unit
|                     
|                     
|Organon              
|Intervet             
|Diosynth             
|                     
|                     
|                     
|                     
|                     
|                     
|                     

Pharma continued to work hard to reduce the complexity within its business units and improve operational efficiencies. U.S. dollar weakness and increasingly stiff competition made these steps all
the more important. Despite Pharmas best efforts, sales and operating income were down substantially, continuing the downward trend triggered in December 2002 by the loss of exclusivity of Remeron®, which until then had been our leading antidepressant. Also expenses of EUR 89 million were incurred for the settlement of most of the
Remeron®cases. In addition, in 2003 Pharma benefited from the payment of EUR 88 million for the asenapine
cooperation by Pfizer.

Addressing the Remeron®lifecycle management issues was the
biggest challenge for Organon in 2004. Organon entered into several agreements with generic companies to help market the product while managing Remeron®SolTab®, which remains exclusive in some markets. Also, most of the key
lawsuits concerning Remeron®in the United States were settled, resulting in a charge of EUR 89 million.

Sales of Organons key products developed as follows:

|                             |                   
|---------------------------- | ------------------
|Millions
      of euros or % |                   
|                             | 2004
        sales
|                             |                   
|Remeron®in U.S.              | 47                
|Remeron®in rest of world     | 316               
|Contraceptives               | 522               
|- of which NuvaRing®         | 81                
|Puregon®/Follistim®          | 285               
|Livial®                      | 160               
|                             |                   

R&D achievements help move Organon forward and the progress made in 2004 give us confidence. Follistim®-AQ cartridge was approved in the United States, which should add to sales of this key fertility product. The asenapine program with Pfizer has made good progress. Phase III is well under way; FDA

|1 | Autonomous
        sales growth is defined as the change in sales attributable to changed
        volumes and selling prices. In this case it only excludes
        the change in sales attributable to currency translation effects. Acquisitions
        and divestments were not applicable.
        Reference is made to the remarks under Introduction on page 4.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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63

and European EMEA submissions are planned for the first half of 2007. The approvable letter for the Implanon®birth control implant should also positively affect the second half of 2005 in the United States. There was, however, some negative R&D news, most notably the FDA rejection of our application for
the antidepressant gepirone ER in June 2004.

Diosynth had a very difficult year with sales down 24 percent, reflecting the overall situation of the contract manufacturing industry. In the biotechnology segment, several new manufacturing
contracts were awarded, some of which may prove significant in the future.

In August, we announced the integration of Diosynth and Organon, which will combine Pharmas knowhow, especially in the biotechnology area, and simplify supply chain management. Third-party
customers of Diosynth will continue to be served under the Diosynth name.

The major news in the animal health sector was the recurrence of avian flu. Intervet provided support to various governments in addressing this serious threat. It also took steps to improve
operational efficiency, the first results of which are clearly reflected in earnings.

Coatings Group

|                                       |                                            
|-------------------------------------- | -------------------------------------------
|Business
      unit                    | Percentage
        of
        net sales2004
|                                       |                                            
|                                       |                                            
|Decorative Coatings                    | 36                                         
|Industrial Coatings
      and Finishes | 30                                         
|Marine & Protective
      Coatings     | 17                                         
|Car Refinishes                         | 17                                         
|                                       |                                            
|                                       |                                            
|                                       |                                            
|                                       |                                            
|                                       |                                            
|                                       |                                            
|                                       |                                            

Coatings operating income was slightly down on 2003, mainly due to higher restructuring and impairment charges. Coatings reaped the benefits from high volume growth, tight cost control, but was
impacted by steeply increasing raw material costs and difficult economic circumstances in Europe. All business units achieved performance gains, except for Car Refinishes, where a major restructuring program is being implemented to address this
situation. In the fourth quarter of 2004, margins were under pressure from increased raw material prices, in particular in the industrial activities. All in all, Coatings is well under way on its road map to the medium-term ROI target of 25 percent
(based on an operating income figure excluding restructuring and impairment charges).

In 2004, sales grew autonomously by 5 percent, mainly in emerging markets (mainly Eastern Europe, Asia, and Latin America), which now represent 32 percent of worldwide sales. We opened two new
multipurpose Industrial Finishes sites in China and a new Non-Stick Coatings facility in Brazil. Marine & Protective Coatings established International Paint Japan to serve Japanese and worldwide marine coatings

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64

customers also directly in this important market. We also completed investments in two new Powder Coatings sites in China and a new Decorative Coatings facility in Vietnam.

During the year, we established Nobilas Claims & Fleet Solutions as a separate business unit to fully exploit the potential to become the leading provider in all areas of accident management
services.

We continued to improve our business mix by divesting eight small noncore businesses and making selective acquisitions, such as Rhenacoat coil coatings in France and BASFs joinery business.

Decorative Coatings Europe remained focused on extending its distribution channels by acquiring ten wholesalers. In Germanythe biggest coatings market in Europewe stepped up efforts to
improve our position by acquiring Timpe & Mock and taking a 30 percent shareholding in Peters.

To realign the business with changing market conditions, Car Refinishes announced a major restructuring program, involving 10 percent of its global workforce.

Our main challenge continues to be a balancing act between our unwavering commitment to reducing our cost base in mature markets and at the same time capturing growth opportunities in emerging
markets through a combination of selective acquisitions and organic growth.

Chemicals Group

|                         |                                    
|------------------------ | -----------------------------------
|Business
      unit      | Percentage
        of net sales2004
|                         |                                    
|                         |                                    
|Pulp and Paper Chemicals | 21                                 
|Surface Chemistry        | 19                                 
|Functional Chemicals     | 13                                 
|Base Chemicals           | 13                                 
|Polymer Chemical         | 11                                 
|Salt                     | 6                                  
|Energy                   | 4                                  
|Divested operations      | 13                                 
|                         |                                    
|                         |                                    

Akzo Nobel Chemicals experienced substantial profit growth triggered by gains on the divestments. Global demand increased and results further benefited from cost savings and manufacturing
efficiency improvements, partially offset by the impact of increased raw material and energy prices.

Sales and operating income
  excluding the divested businesses1increased on 2003 by 1 percent and 16 percent, respectively. Improvements were
  achieved in particular by Functional Chemicals and Pulp & Paper Chemicals,
  and Surface Chemistry. Earnings of Salt were under pressure. Results of Polymer
  Chemicals were also lower, mainly due to higher restructuring and impairment
  charges.

|1 | See also Note 22
      of the Notes to the Consolidated Financial Statements.
|- | -----------------------------------------------------------------------------

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65

During the year the divestments of Catalysts, Phosphorus Chemicals, and Coating Resins were successfully carried out. The divestment program generated proceeds of close to EUR 1 billion, which is
above the annual sales of these businesses and reflects their solid value.

Key investment projects in 2004 included the EUR 50 million Pulp & Paper chemical factory island within the Veracel paper mill complex at Eunapolis in Brazil and the start of the EUR 160
million relocation of Chlorine and MCAA plants from Hengelo to Delfzijl, the Netherlands. This project is supported by the Dutch government in order to end chlorine transports by rail in the Netherlands.

Our investment in China now comprises seven factories covering the Polymer, Paper, and Functional Chemicals market segments. Our combined chemicals sales in China in 2004 aggregated some EUR 130
million and are growing rapidly.

2004 was a year of streamlining, restructuring, and consolidation of the R&D activities in and across Chemicals' business units to improve the effectiveness of operations. Despite these
organizational changes, some new technologies and products were developed.

Geographic Developments

|                               |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|------------------------------ | -------------------- |  | ---------------- |  | ---------------------- |  | ------ |  | ------------ | - | ----- | - | ------ |  | ------ | 
|                               | Net
      sales,     |  | Net
      sales, |  |                        |  |        |  | Identifiable |  
|                               | by
      destination |  | by
      origin  |  | Operating
      income |  | assets | 
|Millions
      of euros        | 2004                 |  | 2003             |  | 2004                   |  | 2003   |  | 2004         |   | 2003  |   | 2004   |  | 2003   | 
|                               |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|                               |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|The Netherlands                | 826                  |  | 825              |  | 2,624                  |  | 2,546  |  | 72           |   | 171   |   | 2,799  |  | 2,942  | 
|Germany                        | 1,159                |  | 1,147            |  | 1,043                  |  | 1,088  |  | 92           |   | 73    |   | 823    |  | 798    | 
|Sweden                         | 506                  |  | 510              |  | 1,152                  |  | 1,102  |  | 30           |   | 66    |   | 846    |  | 773    | 
|United
      Kingdom           | 831                  |  | 840              |  | 846                    |  | 798    |  | (110         | ) | (118  | ) | 944    |  | 913    | 
|Other
      European countries | 4,012                |  | 3,963            |  | 2,918                  |  | 3,100  |  | 508          |   | 509   |   | 2,098  |  | 2,074  | 
|USA and
      Canada           | 2,443                |  | 2,944            |  | 2,220                  |  | 2,604  |  | (72          | ) | 94    |   | 1,636  |  | 2,014  | 
|Latin
      America            | 726                  |  | 704              |  | 490                    |  | 470    |  | 67           |   | 60    |   | 454    |  | 400    | 
|Asia                           | 1,535                |  | 1,453            |  | 1,084                  |  | 1,022  |  | 158          |   | 125   |   | 835    |  | 848    | 
|Other
      regions            | 650                  |  | 665              |  | 311                    |  | 321    |  | 46           |   | 59    |   | 284    |  | 302    | 
|Results
      on divestments   |                      |  |                  |  |                        |  |        |  | 509          |   | 25    |   |        |  |        | 
|Eliminations,
      cash and   |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|cash
      equivalents, and    |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|nonconsolidated                |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|companies,
      net           |                      |  |                  |  |                        |  |        |  |              |   |       |   | 1,686  |  | 890    | 
|                               |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|                               |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|Total                          | 12,688               |  | 13,051           |  | 12,688                 |  | 13,051 |  | 1,300        |   | 1,064 |   | 12,405 |  | 11,954 | 
|                               |                      |  |                  |  |                        |  |        |  |              |   |       |   |        |  |        | 
|                              
|

Sales and earnings in 2004 were affected by the weakening of key foreign currencies relative to the euro, mainly concerning the U.S. dollar and various Asian currencies, and the divestments made
in Chemicals.

Sales in the United States of Pharma were affected by intensified generic competition in 2004 for Remeron®, while Chemicals sales were down due to the divestment of Catalysts. Both Coatings and Chemicals activities clearly grew in China.

In 2004, operating income
  in The Netherlands and Germany benefited from the divestments in Chemicals.
  This was also the case for the United States, where this favorable effect however
  was more than offset by the decline of Remeron®.
  Earnings in Sweden declined due to higher restructuring and other costs. In
  the

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66

United Kingdom, results
  remained under pressure from pension costs. The course of business in Latin
  America clearly improved, while the Company in Asia also achieved healthy earnings
  growth.

2003 COMPARED TO 2002

For Akzo Nobel, 2003 was a very challenging year with a lot of headwind. In general, there was no or even negative growth in the Companys markets in Europe, North America, and Latin America,
although in the United States there were signs of recovery in the fourth quarter. The weakening of the U.S. dollar and related currencies and higher pension charges impacted heavily on our top and bottom lines. Moreover, our traditionally most
profitable business Organon was confronted with the loss of market exclusivity for its key drug Remeron®in the
United States, which put significant pressure on results.

Trying to face this multitude of challenges, ongoing restructuring programs were accelerated, and many new programs were started. The continued process of pruning our portfolio resulted in several
divestments. Altogether, our total workforce was reduced from 67,900 to 64,600.

The strong focus on restructuring, costs, and cash did not prevent us from investing in new growth opportunities in high growth regions. We are participating in the growth in Asia, particularly
China.

Even in this challenging year, we showed serious commitment to a multiyear debt reduction program: we were able to bring net debt down by EUR 0.8 billion and to substantially improve our balance
sheet. We also achieved an increase of the average maturity of our long-term debt through the successful issue of public bonds.

Sales, Cost,
  and Income

|                                                     |                                     |   |        |  
|---------------------------------------------------- | ----------------------------------- | - | ------ | -
|                                                     | Condensed
      statement of income |  
|Millions
      of euros                              | 2003                                |   | 2002   |  
|                                                     |                                     |   |        |  
|Net sales                                            | 13,051                              |   | 14,002 |  
|Cost of sales                                        | (6,933                              | ) | (7,301 | )
|                                                     |                                     |   |        |  
|                                                     |                                     |   |        |  
|Gross margin                                         | 6,118                               |   | 6,701  |  
|Selling, R&D,
      and G&A expenses, other results  | (4,771                              | ) | (5,194 | )
|Restructuring and
      impairment charges           | (308                                | ) | (236   | )
|Results on divestments                               | 25                                  |   | 91     |  
|                                                     |                                     |   |        |  
|                                                     |                                     |   |        |  
|Operating income                                     | 1,064                               |   | 1,362  |  
|Financing charges,
      net                         | (166                                | ) | (204   | )
|                                                     |                                     |   |        |  
|                                                     |                                     |   |        |  
|Operating income
      less financing charges        | 898                                 |   | 1,158  |  
|Income taxes                                         | (254                                | ) | (335   | )
|                                                     |                                     |   |        |  
|                                                     |                                     |   |        |  
|Earnings of consolidated
      companies after taxes | 644                                 |   | 823    |  
|Earnings from nonconsolidated
      companies        | 7                                   |   | 30     |  
|                                                     |                                     |   |        |  
|                                                     |                                     |   |        |  
|Earnings before minority
      interest              | 651                                 |   | 853    |  
|Minority interest                                    | (49                                 | ) | (35    | )
|                                                     |                                     |   |        |  
|                                                     |                                     |   |        |  
|Net income                                           | 602                                 |   | 818    |  
|                                                     |                                     |   |        |  

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67

SalesSales in
  2003 were EUR 13.1 billion, 7 percent down on the previous year. Autonomous
  (sales volume and price) growth was flat, while currency translation had a negative
  impact of 8 percent. Sales developed as follows:

|                 | 
|---------------- | 
|                 | 
|In
      percent | 
|                 | 
|Pharma           | 
|Coatings         | 
|Chemicals        | 
|Akzo
      Nobel | 
|                 | 

The negative currency translation impact predominantly related to the weakening of the U.S. dollar, the pound sterling, the Brazilian real, and various Asian currencies.

Acquisitions mainly concerned Ferros powder coatings business, Cromptons Industrial Specialties, and ECI Elektro-Chemie. Divestments mainly related to Impregnated Papers.

Operating
  IncomeOperating income was EUR
  1,064 million, on balance 22 percent below 2002. The improvement in operational
  performance attributable to significant cost savings did not fully offset the
  EUR 300 million negative effect from currency translation and higher pension
  charges, and the EUR 138 million higher restructuring and impairment charges.
  Operating income developed as follows:

|                        |            |   |             |   |             |  |                        |   |           |   |                |  
|----------------------- | ---------- | - | ----------- | - | ----------- |  | ---------------------- | - | --------- | - | -------------- | -
|                        |            |   |             |   |             |  | Change
      from 2002 |   |           |  
|                        |            |   |             |   |             |  |                        |   |           |  
|                        |            |   |             |   |             |  |                        |   |           |   |                |  
|                        |            |   |             |   |             |  |                        |   |           |   | Restructuring  |  
|                        | Operating  |   | Total       |   |             |  |                        |   | Increased |   | and impairment |  
|                        | income for |   | change from |   | Operational |  | Currency               |   | pension   |   | charges/ gains |  
|Millions
      of euros | 2003       |   | 2002        |   | performance |  | translation            |   | charges   |   | on divestments |  
|                        |            |   |             |   |             |  |                        |   |           |   |                |  
|Pharma                  | 538        |   | (209        | ) | 67          |  | (110                   | ) | (32       | ) | (134           | )
|Coatings1               | 369        |   | (55         | ) | 43          |  | (47                    | ) | (32       | ) | (19            | )
|Chemicals1              | 257        |   | (13         | ) | 17          |  | (13                    | ) | (32       | ) | 15             |  
|Other                   | (100       | ) | (21         | ) | 13          |  |                       |   | (34       | ) |                |  
|                        |            |   |             |   |             |  |                        |   |           |   |                |  
|Akzo Nobel              | 1,064      |   | (298        | ) | 140         |  | (170                   | ) | (130      | ) | (138           | )
|                        |           

All three groups registered
  a positive operational performance. At Pharma, significant cost savings and
  the initial payment from Pfizer for the asenapine cooperation of EUR 88 million,
  more than offset the drop in Remeron®earnings in the United States. Coatings and Chemicals clearly did better than
  in 2002, as a result of substantial cost savings.

Operating income disclosed
  as Other was positively influenced by lower additions to corporate
  provisions and some currency gains.

|1 | 2003 and 2002 figures
      have been adjusted for a minor regrouping of activities between Coatings
      and Chemicals.
|- | -------------------------------------------------------------------------------------------------------------------------

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68

R&D Expenses

R&D expenses were EUR
  887 million, which is 6.8 percent of sales. For 2002, this was EUR 912 million
  and 6.5 percent, respectively. Pharmas R&D expenses as a percentage
  of sales were increased to 16 percent (2002: 15 percent), reflecting continuous
  commitment to research and development. Organon spent 19 percent of its sales
  on research (2002: 18 percent). For Coatings and Chemicals this ratio remained
  unchanged at 3 percent.

Restructuring and Impairment Charges

The restructuring and impairment charges in
  2003 consist of the following elements:

|                     |      |  
|-------------------- | ---- | -
|Millions of euros    |      |  
|                     |      |  
|Asset impairments at |      |  
|- Pharma             | (114 | )
|- Coatings           | (5   | )
|- Chemicals          | (19  | )
|Restructurings at    |      |  
|- Pharma             | (40  | )
|- Coatings           | (40  | )
|- Chemicals          | (90  | )
|                     |      |  
|Total                | (308 | )
|                     |     

Impairment charges at Pharma were made in the context of the reassessment and redefinition of its global business, production, and marketing strategy. The writedowns concern facilities in the United States, Japan, United Kingdom, and some other countries.

The restructuring charges consist of provisions for severance payments and other restructuring costs. At Pharma, these predominantly concern the worldwide restructurings at Organon. Coatings charges relate to the restructuring of Transportation Coatings and cost saving measures at various other activities. At Chemicals, restructuring costs were incurred for especially Polymer Chemicals, Surface Chemistry, Base Chemicals, and Chelates.

In total, these restructurings affect 2,165 jobs worldwide.

Results on Divestments

The gain on divestments in 2003 predominantly concerned the divestment of Chemicals property in the United Kingdom. The gain on divestments in 2002 related to the divestment of Rosemont Pharmaceuticals Ltd in the United Kingdom and several other smaller divestments.

Financing Charges, net

Financing charges decreased from EUR 204 million in 2002 to EUR 166 million in 2003. 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.

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69

Income Taxes

The income tax charge for 2003 amounted to 28 percent, compared with 29 percent in 2002, reflecting the somewhat changed geographic distribution of the Companys results.

Earnings from Nonconsolidated Companies

Earnings from nonconsolidated companies at
  EUR 7 million were sharply below 2002. Methanor, Acordis, and Brazilian catalyst
  joint venture FCC did better, while earnings of Flexsys declined due to restructuring
  and antitrust charges. ECI Elektro-Chemie has been consolidated since the fourth
  quarter of 2002, when the Company acquired the remaining 50 percent-stake.

Number of employeesThe number of employees developed
  as follows:

|           |             
|---------- | ------------
|           |             
|Number of  | December 31,
|employees  | 2003        
|           |             
|Pharma     | 20,680      
|Coatings1  | 28,340      
|Chemicals1 | 14,410      
|Others     | 1,150       
|           |             
|           |             
|Akzo Nobel | 64,580      
|           |             

To date, the major restructuring programs initiated in 2001 and expanded during 2002 and 2003, have resulted in a total workforce reduction by 6,280, some 10 percent of the Companys workforce.

Especially in Coatings, the Company expanded its workforce in those activities and regions where it is growing, such as China.

Sales and Operating Income by Activities

Earnings development per group was as follows.

|                                         |                
|---------------------------------------- | ---------------
|                                         | Net
      sales
|Millions of euros                        | 2003           
|                                         |                
|                                         |                
|Pharma                                   | 3,550          
|Coatings1                                | 5,160          
|Chemicals1                               | 4,470          
|Miscellaneous products,
      intragroup |                
|deliveries,
      and eliminations       | (129           
|                                         |                
|Total                                    | 13,051         
|                                         |                



|1 | 2003
      and 2002 figures have been adjusted for a minor regrouping of activities
      between Coatings and Chemicals.
|- | -------------------------------------------------------------------------------------------------------------------------

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70

Pharma Group

|              |                   
|------------- | ------------------
|              | Percentage        
|              | of net
      sales
|Business unit | 2003              
|              |                   
|Organon       | 60                
|Intervet      | 27                
|Diosynth      | 13                
|              |                   
|              |                   
|              |                   
|              |                   
|              |                   
|              |                   
|              |                   

In 2003, our Pharma group faced a multitude
  of challenges. It had to absorb a strong negative impact from weaker currencies
  and higher pension charges. On top of that, our human healthcare unit Organon
  faced the loss of market exclusivity for its No. 1 drug Remeron®in the United States. Therefore, a new strategy was developed with priorities
  for a clear focus on leading positions, alliances to strengthen our growth opportunities
  in other areas, and aggressive cost cutting. This strategy was vigorously implemented,
  as was reflected by the conclusion of a major cooperation with Pfizer for asenapinea
  very promising phase III drug for schizophrenia and bipolar disorders,
  a revised agreement with Sanofi-Synthélabo on Arixtra®,
  and a very sizeable cost reduction program. Under the circumstances, Organon
  turned in a satisfactory performance. Diosynth faced headwinds in third-party
  markets and, looking ahead, will also be impacted by the downturn at Organon.
  Finally, Intervet was affected by difficult market conditions, especially in
  the Americas.

Due to these adverse conditions, sales were down 11 percent to EUR 3.6 billion, predominantly caused by a negative currency translation impact of 9 percent. Pharmas operating income declined 28 percent to EUR 538 million. Results were impacted by the recognition of substantial restructuring and impairment charges. On the other hand, earnings benefited from substantial cost savings and were favored by the special benefit of EUR 88 million from Pfizer payment for the conclusion of the asenapine cooperation.

Sales of Organons main products developed as follows:

|                               |           
|------------------------------ | ----------
|Millions of euros              |           
|                               | 2003 sales
|                               |           
|Remeron®(in the U.S.)          | 208       
|Remeron®(in rest of the world) | 316       
|Contraceptives                 | 517       
|Puregon®                       | 331       
|Livial®                        | 197       
|                               |           

|  |                                                                                                                                                                                                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 | Autonomous sales growth is defined as the
      change in sales attributable to changed volumes and selling prices. In this
      case it only excludes the change in sales attributable to currency translation
      effects. Acquisitions and divestments were not applicable. Reference is
      made to the remarks under Introduction on page 4.
|  |                                                                                                                                                                                                                                                                                                                                                       

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Sales for NuvaRing®are
    gathering momentum, aggregating EUR 40 million for 2003 (2002: EUR 6 million).

Toward the end of the year, the FDA issued
    an approvable letter for Follistim®-AQTMcartridge,
    while the Company submitted additional information for Variza to the
    FDA. In March 2004, the Company received an approval letter for Follistim®-AQTMcartridge.

Early in 2004, Organon and Sanofi-Synthélabo
    concluded that a single management structure would strengthen the opportunities
    for commercial success of antithrombotic Arixtra®in
    the complex U.S. market, where 2003 sales aggregated EUR 7 million. Therefore,
    they agreed that Organon will transfer to Sanofi-Synthélabo its remaining
    rights and development obligations for Arixtra®and
    other oligosaccharides, such as idraparinux (SanOrg 34006), in exchange for
    revenues based on future sales from jointly developed antithrombotic products.

Intervet felt the impact of the weaker U.S.
    dollar and difficult market conditions in the Americas. Performance in Europe
    was better.

Earnings of Diosynth are impacted by deteriorating
    conditions in third-party markets for both chemical and biotech products.
    Looking ahead, it will also face lower captive demand from Organon. To address
    this situation, additional restructuring programs were announced in February
    of 2004 affecting 350 jobs worldwide.

|Coatings Group                   |                                      |  |                          |                                      | 
|-------------------------------- | ------------------------------------ |  | ------------------------ | ------------------------------------ | 
|                                 |                                      |  |                          |                                      | 
|Business unit                    | Percentage
          ofnet sales2003 |  | Country of origin        | Percentage
          ofnet sales2003 | 
|                                 |                                      |  |                          |                                      | 
|Decorative Coatings              | 35                                   |  | The Netherlands          | 6                                    | 
|Industrial Coatings and Finishes | 26                                   |  | Germany                  | 9                                    | 
|Marine & Protective Coatings     | 16                                   |  | Sweden                   | 8                                    | 
|Car Refinishes                   | 17                                   |  | United Kingdom           | 11                                   | 
|Industrial Products              | 6                                    |  | France                   | 9                                    | 
|                                 |                                      |  | Other European countries | 22                                   | 
|                                 |                                      |  | USA and Canada           | 17                                   | 
|                                 |                                      |  | Latin America            | 3                                    | 
|                                 |                                      |  | Asia                     | 11                                   | 
|                                 |                                      |  | Other regions            | 4                                    | 
|                                 |                                      |  |                          |                                      | 

Excluding the effect of restructuring and
    impairment charges, Coatings maintained its return on invested capital of
    approximately 20 percent, despite difficult economic circumstances, negative
    currency influences, and further increased pension costs. Including such
    restructuring and impairment charges, ROI was 18 percent. This was achieved
    through improvement of the business mix by divesting Impregnated Papers and
    some smaller noncore businesses and idle assets. We also stepped up our restructuring
    programs in mature markets. In total, restructurings and divestments resulted
    in a workforce reduction of 1,890 people, which was partially offset by headcount
    increases in Asia Pacific. Restriction of capital expenditures to some 90
    percent of depreciation and further reduction of working capital contributed
    to maintaining our ROI level.

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Sales of EUR 5.2 billion were 5 percent lower
    than in 2002. Autonomous (sales volume and price) growth of 3 percent was
    offset by a negative currency translation effect of 7 percent, with divestments
    and acquisitions, on balance leading to a 1 percent decrease, which mainly
    related to the divestment of Impregnated Papers.

Coatings' operating income of EUR 369 million
    was down 13 percent from 2002. The benefits from the aggressive restructuring
    programs did not offset the negative impact from weaker key currencies and
    higher pension charges and additional restructuring charges.

Conditions for decorative coatings in Europe
    were tough, especially in the retail sector. The decorative coatings business
    in emerging markets continued to expand. The industrial part of our portfolio
    held up reasonably well, not only our star performer Marine & Protective
    Coatings but also the wood and coil coatings activities of Industrial Finishes,
    and Powder Coatings. Market conditions for Car Refinishes remained very competitive
    and pressure on volumes continued.

We continued to grow in Asia
  Pacific, which represented 14 percent of worldwide Coatings sales (by country
  of destination). In 2003, we opened a powder coatings facility in Vietnam and
  a nonstick coatings facility in Dongguan City, China, and announced the investment
  in a decorative coatings facility in Suzhou, China. In addition, two wood coatings
  facilities came on stream in the first half of 2004. Furthermore, we acquired
  full ownership of our powder coatings activities in South Korea and decided
  to set up our own marketing and sales company for marine and protective coatings
  in Japan.

|Chemicals Group          |                            |  |                          |                            | 
|------------------------ | -------------------------- |  | ------------------------ | -------------------------- | 
|                         |                            |  |                          |                            | 
|Business unit            | Percentageof net sales2003 |  | Country of origin        | Percentageof net sales2003 | 
|                         |                            |  |                          |                            | 
|Pulp and Paper Chemicals | 19                         |  | The Netherlands          | 27                         | 
|Functional Chemicals     | 17                         |  | Germany                  | 10                         | 
|Surface Chemistry        | 18                         |  | Sweden                   | 15                         | 
|Polymer Chemicals        | 10                         |  | UK                       | 3                          | 
|Base Chemicals           | 11                         |  | Other European countries | 9                          | 
|Resins                   | 8                          |  | USA and Canada           | 27                         | 
|Catalysts                | 7                          |  | Latin America            | 3                          | 
|Salt                     | 6                          |  | Asia                     | 5                          | 
|Energy                   | 4                          |  | Other regions            | 1                          | 
|                         |                            |  |                          |                            | 

Despite very difficult market conditions in
    the chemical industry, Akzo Nobel Chemicals was able to turn in a satisfactory
    performance, as a result of its forceful restructuring programs throughout
    the group. In 2003, the workforce was reduced by 1,000 people, and several
    of the programs continued into 2004.

Overall, Chemicals sales of EUR 4.5
    billion were down 4 percent from 2002. Autonomous (volume and price) growth
    was 1 percent, while currency translation had a negative impact of 7 percent.
    Acquisitions and divestments, on balance, added 2 percent.

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73

Operating income decreased 5 percent to EUR
    257 million. Benefits from the restructuring programs and autonomous growth
    did not offset the impact of lower exchange rates for key currencies, weak
    economic conditions, higher pension costs, and somewhat higher raw material
    and energy prices.

Catalysts again achieved a strong performance,
    while Base Chemicals benefited from the acquisition of ECI Elektro-Chemie.
    Pulp & Paper Chemicals did better as a result of cost-saving measures.
    Polymer Chemicals and Surface Chemistry remained under pressure from soft
    market conditions.

In September, we announced our intention to
    sell our Catalysts, Phosphorus Chemicals, and Coating Resins businesses in
    order to create room to maneuver and further improve the Companys balance
    sheet. These transactions were completed in the course of 2004, generating
    proceeds of EUR 1.0 billion.

We will continue to invest, both through organic
    growth and carefully selected acquisitions, in profitable and leadership
    positions. Three significant projects came on stream: a major expansion of
    our chlor-alkali plant in Rotterdam, expansion of ethylene amines production
    in Sweden, and a grass-root quat plant in Singapore. To meet growing demand
    from the rapidly expanding South American pulp and paper industry, an investment
    in a Chemical Island at the new Veracel pulp mill in Brazil was
    approved. Additionally, further chlor-alkali expansion in Rotterdam (although
    at present still subject to EU-approval of a grant) and an increase in salt
    capacity in Hengelo, the Netherlands, will go ahead.

2003 saw one selective acquisition, CIRS SpA
    (Italy), an antifouling/suspending agent producer for the polymer industry.

|Geographic Developments     |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 
|--------------------------- | ------------------------------ |  | ------------------------- |  | ---------------------- |  | ------------------ |  | ----- | - | ----- | - | ------ |  | ------ | 
|                            |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 
|                            | Net
      sales,by destination |  | Net
      sales,by origin |  | Operating
      income |  | Identifiableassets | 
|Millions
      of euros     | 2003                           |  | 2002                      |  | 2003                   |  | 2002               |  | 2003  |   | 2002  |   | 2003   |  | 2002   | 
|                            |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 
|The Netherlands             | 825                            |  | 816                       |  | 2,546                  |  | 2,662              |  | 171   |   | 179   |   | 2,942  |  | 2,618  | 
|Germany                     | 1,147                          |  | 1,084                     |  | 1,088                  |  | 1,051              |  | 73    |   | 34    |   | 798    |  | 819    | 
|Sweden                      | 510                            |  | 517                       |  | 1,102                  |  | 1,184              |  | 66    |   | 95    |   | 773    |  | 798    | 
|United Kingdom              | 840                            |  | 963                       |  | 798                    |  | 911                |  | (118  | ) | (16   | ) | 913    |  | 1,134  | 
|Other European countries    | 3,963                          |  | 3,951                     |  | 3,100                  |  | 3,016              |  | 509   |   | 591   |   | 2,074  |  | 2,210  | 
|USA and Canada              | 2,944                          |  | 3,723                     |  | 2,604                  |  | 3,318              |  | 94    |   | 100   |   | 2,014  |  | 2,772  | 
|Latin America               | 704                            |  | 767                       |  | 470                    |  | 506                |  | 60    |   | 96    |   | 400    |  | 424    | 
|Asia                        | 1,453                          |  | 1,513                     |  | 1,022                  |  | 1,064              |  | 125   |   | 140   |   | 848    |  | 838    | 
|Other regions               | 665                            |  | 668                       |  | 321                    |  | 290                |  | 59    |   | 52    |   | 302    |  | 306    | 
|Results on divestments      |                                |  |                           |  |                        |  |                    |  | 25    |   | 91    |   |        |  |        | 
|Eliminations, cash and      |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 
|cash
      equivalents, and |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 
|nonconsolidated             |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 
|companies,
      net        |                                |  |                           |  |                        |  |                    |  |       |   |       |   | 890    |  | 870    | 
|                            |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 
|Total                       | 13,051                         |  | 14,002                    |  | 13,051                 |  | 14,002             |  | 1,064 |   | 1,362 |   | 11,954 |  | 12,789 | 
|                            |                                |  |                           |  |                        |  |                    |  |       |   |       |   |        |  |        | 

Sales and earnings in 2003 were affected by
    the generally soft economic conditions and the weakening of key foreign currencies
    relative to the euro, mainly concerning the U.S. dollar, the pound sterling,
    the Brazilian real, and various Asian currencies.

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Sales in Germany increased due to the acquisition
    of the remaining 50 percent of ECI Elektro-Chemie. In the United States,
    Pharmas sales of Remeron®were
    affected by generic competition in 2003. Both Coatings and Chemicals activities
    clearly grew in China.

In 2003, operating income in Germany was not
    only higher due to the higher sales levels, but also due to lower restructuring
    charges. Earnings in Sweden declined due to higher restructuring costs. In
    the United Kingdom, 2003 results were under pressure from higher pension
    costs. The downturn in the Other European countries mainly stems from lower
    Pharma earnings.

LIQUIDITY AND CAPITAL RESOURCES

To Akzo Nobel's knowledge, and other than
    as disclosed herein, 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
    herein, 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 to time, as and when appropriate.

|Condensed Statement
      of Cash Flows                       |       |   |       |   |       |  
|------------------------------------------------------------- | ----- | - | ----- | - | ----- | -
|                                                              |       |   |       |   |       |  
|Millions of euros                                             | 2004  |   | 2003  |   | 2002  |  
|                                                              |       |   |       |   |       |  
|Cash inflow from operations                                   | 1,117 |   | 1,516 |   | 1,431 |  
|Working capital decrease
      / (increase)                   | 156   |   | (119  | ) | 117   |  
|                                                              |       |   |       |   |       |  
|Net cash provided
      by operating activities               | 1,273 |   | 1,397 |   | 1,548 |  
|                                                              |       |   |       |   |       |  
|Investments in noncurrent
      assets                        | (573  | ) | (631  | ) | (749  | )
|Net cash effect of acquisitions                               | (80   | ) | (101  | ) | (257  | )
|Proceeds from divestments/redemptions                         | 1,007 |   | 281   |   | 227   |  
|                                                              |       |   |       |   |       |  
|Net cash generated
      by / (used for) investing activities | 354   |   | (451  | ) | (779  | )
|                                                              |       |   |       |   |       |  
|Cash dividends paid                                           | (366  | ) | (370  | ) | (363  | )
|Purchase of shares                                            | –     |   | –     |   | (6    | )
|Issuance of shares                                            |       |   |       |   | 4     |  
|Net (redemption) / increase
      of borrowings               | (169  | ) | (342  | ) | (290  | )
|                                                              |       |   |       |   |       |  
|Net cash used for
      financing activities                  | (535  | ) | (712  | ) | (655  | )
|                                                              |       |   |       |   |       |  
|Effect of exchange rate
      changes on cash and cash        |       |   |       |   |       |  
|equivalents                                                   | (8    | ) | (27   | ) | (49   | )
|                                                              |       |   |       |   |       |  
|Change in cash and
      cash equivalents                     | 1,084 |   | 207   |   | 65    |  
|                                                              |       |   |       |   |       |  

Net cash provided by operating activities
    amounted to EUR 1.3 billion in 2004, EUR 1.4 billion in 2003 and EUR 1.5
    billion in 2002. Cash inflows from operations in 2004 declined on 2003 due
    to lower earnings (excluding book profits and depreciation, amortization
    and impairment charges) and increased payments from provisions, partially
    offset by higher dividends from nonconsolidated companies. Cash inflows from

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operations in 2003 improved on 2002 as included
    in the lower earnings (excluding book profits and depreciation, amortization
    and impairment charges) were significant additions to provisions, which substantially
    exceeded cash payments from these provisions.

Working capital in 2004 decreased as a result
    of the Companys improved capital management. Working capital in 2003
    increased, when compared to 2002, due to inventory build-up in Pharma.

Net cash generated by/used in investing activities
    amounted to EUR (0.4) billion in 2004, EUR 0.5 billion in 2003 and EUR 0.8
    billion in 2002. Due to the Companys focus on cash, investments showed
    a declining trend over 2002 to 2004. In 2004, capital expenditures were below
    the 2003 levelmainly attributable to Pharmaand almost at depreciation
    level. Investments are targeted at priority businesses and regions, particularly
    China and Central and Eastern Europe. In these areas, growth continued at
    high rates, and we opened several new factories to participate in this development.
    Chemicals investments also include projects in the Netherlands and
    Brazil. In 2003, capital expenditures of all three groups were lower.

2004 acquisition expenditures concerned Timpe & Mock
    and several other acquisitions at Coatings. In 2003, acquisition expenditures
    mainly related to payments for CIRS and the final settlement for the acquisitions
    of ECI Elektro-Chemie and Cromptons Industrial Specialties. Acquisitions
    in 2002 predominantlyconcerned Ferros
    powder coatings activities, Awlgrip® marine and aerospace
    coatings business, and Cromptons Industrial Specialties.

Proceeds from divestments principally related
    to the sale of Catalysts, Phosphorus Chemicals, and Coating Resins. Proceeds
    from divestments in 2003 mainly concerned the sale of Impregnated Papers
    and idle properties. Proceeds from 2001 divestments principally related to
    the sale of Rosemont Pharmaceuticals Ltd. and Printing Inks.

Net cash used for financing activities amounted
    to EUR 0.5 billion, and reduced on 2003 as a result of lower redemptions.

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, 2004, these commercial paper programs were not used.

At December 31, 2004, the total amount of
    long-term credit facilities arranged by Akzo Nobel amounted to EUR 1.5 billion.
    This facility can be used for general corporate financing purpose and supports
    our Commercial Paper programs in the euro-market and in the United States.
    During 2004, none of the facilities were used.

At present the Companys long-term credit
    rating from Moodys is A3 with a short-term rating of P-2, both with
    a so-called stable outlook. The current long-term credit rating
    from Standard & Poors is Aand their short-term rating is
    A-2, both with a so-called negative outlook.

The present rating is 3 notches above the
    so-called high-yield zone. However, if the Companys rating,
    due to whatever circumstances would decline or 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.

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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.

At December 31, 2004, the
  Company had a cash position of EUR 1.8 billion, which was freely available in
  full. The cash position increased strongly on last year, mainly attributable
  to the proceeds from divestments. As a consequence, net interest-bearing borrowings1were down EUR 1.3 billion to EUR 1.1 billion.

For additional information on the type of
    financial instruments used by the Company, the maturity profile of the Companys
    debt, and the currency and interest rate structure of such debt, see Item
    11 Quantitative and Qualitative Disclosures about Market Risk under
    Foreign Currency Exchange Risk Management and Interest Rate Risk Management.

Equity increased EUR 0.5 billion as a result
    of retained 2004 income.

Year-end gearing2improved from 0.92 at December 31, 2003, to 0.36 at December 31, 2004.

Contractual obligations

The following table summarizes our principal
    contractual obligations at December 31, 2004.

|                                              |                                 
|--------------------------------------------- | --------------------------------
|Contractual obligations                       | Payments
          due by period
|Millions of euros                             |                                 
|                                              | Total                           
|                                              |                                 
|                                              |                                 
|Long-term debt and capital lease obligations* | 2,694                           
|Commitments for interest**                    | 622                             
|Operating leases and other long-term          |                                 
|commitments                                   | 557                             
|Commitments for raw materials and services    | 1,287                           
|Commitments for capital expenditures          | 96                              
|                                              |                                 
|Total Contractual Obligations                 | 5,256                           
|                                              |                                 

|   |                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Of which capital leases total EUR 44 million,
        reasonably spread over future years.                                                                                                                                                                                                       
|** | Interest commitments based on fixed interest
        rates. For some loans interest rate swaps were concluded, whereby the
        fixed rate is changed in a floating LIBOR or floating EURIBOR rate. Reference
        is made to note 15 of the consolidated financial statements on page 162.

All purchase commitments for raw materials
    and services are in the ordinary course of business.

Guarantees related to nonconsolidated companies
    totaled EUR 5 million (at December 31, 2003:EUR
    9 million). As general partners in several partnerships, Akzo Nobel companies
    are liable for obligations incurred by these partnerships. At December 31,
    2004, the risk ensuing from known liabilities associated with these partnerships
    was EUR 92 million (at December 31, 2003: EUR 139 million).

|1 | Defined as Long-Term Borrowings
        plus Short-Term Borrowings less Cash and Cash Equivalents.
|- | --------------------------------------------------------------------------------------------------
|2 | Net Interest-Bearing Borrowings1divided
        by Equity.                                        

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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.

Reference is made to Note 8 of the Notes to the Consolidated Financial Statements.

Guarantees related to nonconsolidated companies totaled EUR 5 million (at December 31, 2003:
EUR 9 million). As general partners in several
partnerships, Akzo Nobel companies are liable for obligations incurred by these
partnerships. At December 31, 2004, the risk ensuing from known liabilities associated
with these partnerships was EUR 92 million (at December 31, 2003: EUR 139 million).

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

Research and development spending amounted
    to EUR 912 million in 2002, EUR 887 million in 2003, and EUR 823 million
    in 2004. 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
    2004, 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 127 through 131 of this Report  Summary
    of Significant Accounting Policies Used in Preparing the Consolidated Financial
    Statements (Accounting Policies).

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Impairment of intangible assets and property, plant and equipment

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.

In determining impairments of intangible and tangible fixed assets, management must make significant judgments and estimates to determine if the cash flows generated by those assets are less than their carrying value. Determining 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 are written down to their fair value. 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.

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 53 million as of December 31, 2004, 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 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®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 costs, fines and civil damages, taking into account legal advice and the current facts and circumstances. Provisions for

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other litigation and tax disputes are also based on an estimate of the costs, taking into account legal advice and information currently available.

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.

Also provisions for termination benefits and exit costs involve managements judgment in estimating the expected cash outflows for severance payments and site closure or other exit costs. Should the actual cash outflows differ from the assumptions and estimates, additional charges 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
in Note 12 under Pensions and Postretirement Benefits other than Pensions of
the Notes to the Consolidated Financial Statements of Akzo Nobel.

It should be noted that when discount rates
    decline or rates of compensation increase go upamongst other due to
    increased inflationpension and postretirement benefit obligations will
    increase. Net periodic pension and postretirement costs might also increase,
    but that depends on the actual relation between the unrecognized loss and
    the so-called corridor (10% of the greater of benefit obligations and plan
    assets) as well as on the relative change of the discount rate versus the
    change of the benefit obligation.

If the Company would have to lower the assumed
    expected return on plan assets, this would result in higher net periodic
    pension costs.

NEW ACCOUNTING PRONOUNCEMENTS

NL GAAP

Implementation of International
  Financial Reporting StandardsIn June 2002, the
  European Commission decided that all listed companies in the EU should apply
  International Financial Reporting Standards (IFRS) in their financial statements
  from 2005 onwards. As a consequence, Akzo Nobel will report in accordance with
  IFRS starting with the Report for the First Quarter of 2005. The differences
  not only concern accounting policies, but also additional disclosures in the
  notes to the financial statements. In 2004, we made the required changes to
  our financial reporting and consolidation systems and restated the comparative
  2004 interim statement of income and balance sheet figures. On December 14,
  2004, we published restated figures for the first three quarters of 2004 and
  provided information on the expected impact of IFRS on the Companys reported
  performance and financial position. See IFRS-based reporting for 2004
  & implementation of IAS 32 and 39 published on the Companys
  website. This report was furnished to the Commission on Form 6-K on April 20,
  2005, which is incorporated by reference herein.

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US GAAP

The FASB issued several pronouncements of
    which the following are applicable to the Company.

In December 2004, the Financial Accounting
    Standards Board (FASB) issued Statement of Financial Accounting Standards
    123revised 2004 (SFAS 123R),Share-Based
    Paymentwhich replaces Statement
    of Financial Accounting Standards No. 123 (SFAS 123),Accounting
    for Stock-Based Compensationand
    supersedes APB Opinion No. 25 (APB 25),Accounting
    for Stock Issued to Employees.
    SFAS 123R requires the measurement of all employee share-based payments to
    employees, including grants of employee stock options, using a fair-value-based
    method and the recording of such expense in our consolidated statements of
    income. The accounting provisions of SFAS 123R are effective for reporting
    periods beginning after June 15, 2005. The pro forma disclosures previously
    permitted under SFAS 123 no longer will be an alternative to financial statement
    recognition. We have not yet determined the impact of the adoption of SFAS
    123R.

In November 2004, the FASB issued SFAS 151,Inventory
      Costs, An Amendment of ARB No. 43, Chapter 4.
      This statement clarifies the accounting for abnormal amounts of idle facility
      expense, freight, handling costs, and wasted material (spoilage). The Statement
      requires that those items be recognized as current-period charges. Additionally,
      Statement 151 requires that allocation of fixed production overheads to
      the costs of conversion be based on the normal capacity of the production
      facilities. Statement 151 is effective for fiscal years beginning after
      June 15, 2005, with earlier application permitted. The Company has not
      yet determined the impact of the adoption of SFAS 151.

In December 2003, the SEC
  issued Staff Accounting Bulletin No. 104 ("SAB 104"),Revenue
  Recognition, which
  superseded Staff Accounting Bulletin No. 101 ("SAB 101"),Revenue
  Recognition in Financial Statements.
  The primary purpose of SAB 104 was to rescind accounting guidance contained
  in SAB 101 related to multiple element revenue arrangements, which was superseded
  as a result of the issuance of Emerging Issues Task Force 00-21 ("EITF 00-21"),Accounting
  for Revenue Arrangements with Multiple Deliverables.
  SAB 104 also incorporated certain sections of the SEC'sRevenue
  Recognition in Financial StatementsFrequently Asked Questions and Answersdocument. While the wording of SAB 104 has changed to reflect the issuance of
  EITF 00-21, the revenue recognition principles of SAB 101, as they apply to
  us, remain largely unchanged by the issuance of SAB 104. The adoption of SAB
  104 did not have a material impact on our consolidated financial position, results
  of operations or cash flows.

In December 2003, the FASB issued FIN 46R
    which clarified some of the provisions of FIN 46 and exempted certain entities
    from its requirements. FIN 46R was effective for us for the year ended December
    31, 2004. We have considered the provisions of FIN 46R and concluded that
    the Company holds no variable interest entities that need to be consolidated.

FORWARD LOOKING STATEMENT ON 2005

We look to the future with cautious optimism
    and expect that we will be able to grow the top line of the Company in 2005
    across the portfolio. Our bottom line will benefit from this growth, but
    will also be impacted by raw material priceswhich are still increasingand
    the stronger euro. In human healthcare especially, we will have to rise to
    the challenge during 2005 of finding the right balance between investing
    in R&D and premarketing, while actively defending margins. In spite of
    the very challenging and unpredictable economic

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conditions (currencies and raw material prices),
    we aspire to achieve a net income, excluding nonrecurring items, within the
    range of 2004, which on an IFRS-basis was some EUR 800 million1.

In 2005, our focus will shift to growth, though
    we must keep our eyes on cost to protect our earnings. At the same time,
    following the Chemicals strategy we are creating further room to maneuver
    for growth opportunities in attractive strategic priority areas. We will
    continue to manage our funds in a highly disciplined manner and expect capital
    expenditures in the order of magnitude of EUR 650 million, up from 2004 due
    to our projects in the Netherlands and Brazil. Furthermore, we will continue
    to screen our activities and upgrade our portfolio based on value creation.
    The Companys strategy is also to strengthen the portfolio by selective
    acquisitions, supporting profitable growth in strategic areas.

We expect that no additional funds will have
    to be raised for the financing of continued operations.

Excluding acquisitions and divestments, the
    number of employees is expected to decrease due to the implementation of
    restructuring programs at all groups, while it will expand from investments
    in growth in strategic priority areas.





|1 | For information on
      the impact of the International Financial Reporting Standards (IFRS) see
      the report IFRS-based reporting for 2004 & implementation of IAS
      32 and 39 and the Report for the 1st quarter of 2005.
      Both reports have been furnished to the Commission on Form 6-K in April
      2005, which are incorporated by reference in this Form 20-F.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Item
  6.DIRECTORS,
  SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

**Corporate Governance**

Akzo Nobel N.V. is a public limited liability
    company (Naamloze Vennootschap) established under the laws of
    the Netherlands. Its common shares are listed on Euronext Amsterdam and quoted
    on NASDAQ in the form of American Depositary Receipts.

Akzo Nobels management and supervision
    structure is organized in a so-called two-tier system, comprising a Board
    of Management, solely composed of executive directors, and a Supervisory
    Board, solely composed of nonexecutive directors. The two Boards are independent
    of each other.

Akzo Nobels corporate governance structure
    is based on the requirements of the Dutch Civil Code, the Companys
    Articles of Association, and the rules and regulations applicable to companies
    listed on Euronext Amsterdam and NASDAQ, complemented by several internal
    procedures. These procedures include a risk management and control system
    as well as a system of assurance of compliance with laws and regulations.

Over the last decade, Akzo Nobel has been
    consistently enhancing and improving its corporate governance standards in
    accordance with applicable laws and regulations. Most notable are the Dutch
    Corporate Governance Code adopted in 2003 (the Code) and the
    U.S. Sarbanes-Oxley Act of 2002 and its implementation rules by the SEC and
    NASDAQ.

The Code contains principles and best practices
    for Dutch companies, with listed shares. As already stated in the 2003 Annual
    Report, Akzo Nobel agrees both with the general approach and with the vast
    majority of its principles and best practice provisions. Corporate governance
    at Akzo Nobel was placed on the agenda of the General Meeting of Shareholders
    of 2004 as a separate item for discussion of the intended implementation
    of the Code with shareholders. This specifically included a number of aspects
    where deviations from the Code were expected, as identified in the 2003 Annual
    Report. The Board of Management and the Supervisory Board have taken these
    discussions into account in formulating a position on the Companys
    corporate governance. One of the results is that a proposal for amendment
    of the Articles of Association was submitted to and approved by the General
    Meeting of Shareholders of April 21, 2005. A request has been made to the
    Dutch Ministry of Justice for the required certificate of no objection to
    the notarial deed of amendment of the Articles. After this certificate of
    no objection has been obtained, the civil notary will execute the deed of
    amendment of the Articles and the amended Articles will come into effect.
    At that point in time, the amended Articles will be furnished on Form 6-K.

In this section, Akzo Nobels current
    corporate governance is addressed and actual as well as expected deviations
    from the Code are explained, in accordance with the Codes apply
    or explain principle. Where relevant, the amendment of the Articles
    of Association, as decided at the General Meeting of Shareholders on April
    21, 2005 (the amendment of the Articles) will be mentioned. A
    full elucidation of the amendment of the Articles was added to the notes
    to the agenda of the General Meeting of Shareholders of April 21, 2005. The
    main elements of the amendment of the Articles are described in Item 10.B.

The Board of Management and the Supervisory
    Board believe that the Companys corporate governance structure, as
    described here and in the amendment of the Articles, is the most appropriate
    for Akzo Nobel

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at this point in time. Except for those aspects
    of the Companys governance structure which can only be amended with
    the approval of the General Meeting of Shareholders, the Board of Management
    and the Supervisory Board may make adjustments to the way the Code is applied
    as is described below, if this is considered to be in the interest of the
    Company and its affiliated enterprise. In case such adjustments are made,
    they will be published and reported in the annual report for the relevant
    year.

Supervisory Board

The overall assignment of the Supervisory
    Board is to exercise supervision over the policies adopted by the Board of
    Management and over the general conduct of the business of the Company and
    its subsidiaries. This specifically includes supervision of the realization
    of the Companys operational and financial objectives, the corporate
    strategy designed to achieve the objectives, and the main financial parameters
    and risk factors. The Supervisory Board also provides the Board of Management
    with advice. In fulfilling its assignments the Supervisory Board and its
    members are guided by the interests of the Company and its affiliated enterprise.

Appointment, Independence, and Composition

The members of the Supervisory Board are appointed
    by the General Meeting of Shareholders on the binding nomination by the Meeting
    of Holders of Priority Shares. After adoption by the General Meeting of Shareholders
    on April 21, 2005 of the proposed amendment of the Articles of Association,
    in the future the nomination procedures for the members of the Supervisory
    Board and of the Board of Management (see page 112) will be followed. As
    a general rule, based on the rotation schedule, a members tenure is
    four years. In principle, members are eligible for reelection twice. However,
    in deviation of the Code (provision III.3.5), if it is considered in the
    interest of the Company, a member can be nominated for reelection more often.
    As stated in the Report of the Supervisory Board, the Supervisory Board believes
    it is in the interest of the Company to nominate Mr. Cohen again for reelection
    at the General Meeting of Shareholders of 2005.

The composition of the Supervisory Board is
    such that the members are able to act with due objectivity and independently
    of one another and of the Board of Management. All Supervisory Board members
    meet the independence requirements as stated in Code provisions III.2.1,
    III.2.2 and III.2.3, except for Mr. van Lede and Mr. van den Brink. In this
    respect it should be noted that Mr. van Lede is a former member of the Board
    of Management of Akzo Nobel, who retired from this position in 2003. As a
    long-standing policy, the Company welcomes the recent knowledge and expertise
    of the affairs and business of the Company in one member of the Supervisory
    Board. Mr. van den Brink was a member of the Managing Board of ABN AMRO,
    one of the principal banks of the Company. He retired from this position
    in 2002. Mr. van den Brink is still a consultant on macroeconomic policies
    to this bank, but in this capacity he is not involved in its management.
    Although this is formally not in compliance with Code provision III.2.3,
    the Company is convinced that Mr. van den Brink should be considered as an
    independent Supervisory Board member under the Code.

No member of the Supervisory Board has more
    than five supervisory board memberships in Dutch listed companies.

In 2004, the Supervisory Board revised its
    Rules of Procedure, which include detailed provisions on how to deal with
    conflicts of interest and potential conflicts of interest between members
    of the Supervisory Board and the Company. The Rules of Procedure, encompassing
    the Profile and the Charters of the Committees, reflect the tasks and responsibilities
    of the Supervisory Board and are available on Akzo Nobels website.

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The Chairman of the Supervisory Board determines
    the agenda and chairs the meetings of the Supervisory Board, monitors the
    proper functioning of the Supervisory Board and its Committees, arranges
    for the adequate provision of information to the members of the Supervisory
    Board and acts on behalf of the Supervisory Board as the main contact for
    the Board of Management. He also initiates the evaluation of the functioning
    of the Supervisory Board and the Board of Management, and chairs the General
    Meeting of Shareholders. The Supervisory Board is chaired by Mr. Loudon,
    a former chairman of the Board of Management who retired from this position
    in 1994. This is a deviation from the Code (provision III.4.2). The Company
    believes that in view of the experience and expertise of Mr. Loudon as Chairman
    of the Supervisory Board, it is in the best interest of the Company that
    Mr. Loudon will remain Chairman until he retires in 2006.

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|                      
|----------------------
|Supervisory Board     
|                      
|Aarnout
        Loudon
|(1936, Dutch),        
|Chairman              
|                      
|                      
|Maarten van Veen      
|(1935, Dutch)         
|Deputy Chairman       
|(resigned per May 1,  
|2005)                 
|Virginia Bottomley    
|(1948, British)       
|                      
|                      
|Dolf van den Brink    
|(1948, Dutch)         
|                      
|                      
|                      
|                      
|Uwe-Ernst Bufe        
|(1944, German)        
|                      
|                      
|                      
|Abraham Cohen         
|(1936, American)      
|                      
|                      
|                      
|                      
|Cees van Lede         
|(1942, Dutch)         
|                      
|                      
|                      
|                      
|                      
|Alain Mérieux         
|(1938, French)        
|Lars Thunell          
|(1948, Swedish)       
|Karel Vuursteen       
|(1941, Dutch)         
|                      
|                      
|                      
|                      

Mr. Loudon, Mr. Van Veen,
  Mrs. Bottomley and Mr. Vuursteen are the members of the Remuneration and Nomination
  Committee.

The Audit Committee is formed
  by Mr. van den Brink, Mr. Bufe, Mr. Cohen, and Mr. Thunell.

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Remuneration

Supervisory Board members
  receive a fixed annual remuneration that is determined by the General Meeting
  of Shareholders. In accordance with the Articles of Association, the Supervisory
  Board may vote a remuneration to one or more of its members who have been designated
  to exercise wholly or partly one or more powers or activities of the Supervisory
  Board for the work performed by them in such office.

The members of the Supervisory
  Board are subject to the Akzo Nobel Rules on Inside Information and report all
  transactions in Akzo Nobel shares to the applicable authorities. The Company
  has chosen not to follow provision III.7.3 of the Code that requires notification
  by members of the Supervisory Board of all changes in their holdings of shares
  in Dutch listed companies, as this is governed by the Companys own internal
  code. The same considerations apply as stated in this respect for the members
  of the Board of Management.

Committees

The Supervisory Board has
  established three Committees: the Audit Committee, the Nomination Committee,
  and the Remuneration Committee. Each Committee has a charter describing its
  role and responsibility and the manner in which it reports to the full Supervisory
  Board on its duties. These charters are included in the Rules of Procedure,
  published on the Companys website. The Committees report on their deliberations
  and findings to the full Supervisory Board.

The Audit Committee assists
  the Supervisory Board in its oversight of the quality and integrity of the accounting,
  auditing, reporting, and risk management practices of the Company. The Audit
  Committee focuses on these and a number of other subjects, included in its charter.
  The Chairman of the Audit Committee is Dr. Thunell. The Supervisory Board has
  determined, that Dr. Thunell is an audit committee financial expert as defined
  in Item 16A of Form 20-F.

A major point of attention
  of corporate governance rules is the independence of the auditors. The Audit
  Committee has been delegated direct responsibility for compensation and oversight
  of the auditors and the services they provide to the Company. The auditors are
  prohibited from providing certain nonaudit services to the Company. In order
  to anchor this in the procedures of the Company, the Supervisory Board adopted
  the Akzo Nobel Auditors Independence Policy and the related Akzo
  Nobel Audit Committee Preapproval Policy on Audit, Audit-Related, and Nonaudit
  Services. All the aforementioned documents and policies are available
  on Akzo Nobels website.

The Nomination Committee
  and the Remuneration Committee, until 2005 combined in one committee, consist
  of the same members.

The Nomination Committee
  focuses on drawing up selection criteria and appointment procedures for Supervisory
  Board and Board of Management members, assessing the size and composition of
  both Boards, assessing the functioning of the individual members, making proposals
  for appointments and reappointments, and supervising the Board of Management
  in the selection of senior management. The role of the Nomination Committee
  is formalized in the amendment of the Articles of Association, which includes
  the proposed changes to the appointment procedure for members of the Supervisory
  Board and of the Board of Management described above.

The Remuneration Committee
    is responsible for drafting proposals to the Supervisory Board on the remuneration
    policy, the remuneration of individual members of the Board of Management,
    the remuneration schemes for Akzo Nobel executives involving Akzo Nobel shares,
    and preparing proposals

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by the Supervisory Board
  to the General Meeting of Shareholders concerning the remuneration of the members
  of the Supervisory Board.

The Remuneration Committee
  is chaired by Mr. Loudon. As Mr. Loudon is Chairman of the Supervisory Board
  and a former member of the Board of Management, this constitutes, for continuity
  reasons, a temporary deviation from Code provision III.5.11. This situation
  will no longer exist after Mr. Loudons retirement in 2006.

Activities in 2004

The full Supervisory Board
  met five times in the course of 2004. All meetings were well attended by all
  Board members. The October meeting was held at the Intervet site in Boxmeer,
  the Netherlands, where a special focus was placed on Akzo Nobels animal
  healthcare business unit.

All meetings were plenary
  sessions with the full Board of Management. On two occasions, the Supervisory
  Board held separate meetings, which were partly attended by the CEO, to evaluate
  its working methods, procedures, its own functioning and that of its committees
  as well as the functioning of the Board of Management and its individual members,
  and its relationship with the Board of Management. It also discussed the composition
  of the Supervisory Board and its Committees.

The Chairman of the Supervisory
  Board prepares the meetings with the assistance of the Chairman of the Board
  of Management. The Supervisory Board discussed such issues as Company strategy,
  corporate governance, risk management, restructuring measures, and the approval
  of major investments, acquisitions, and divestments. Regular agenda items included
  financial and operational performance, share price development, operational
  planning, and the annual financing and investment plan.

In light of the Sarbanes-Oxley
  Act in the United States and the Dutch Corporate Governance Code, corporate
  governance was reviewed and preparations were made to revise the Articles of
  Association. Although the Rules of Procedure of the Supervisory Board and its
  Committees had been amended in 2004, a more detailed review took place in early
  2005. The Rules of Procedure are available on the Companys website.

The Supervisory Board again
  devoted considerable time to discussions on the Companys strategy. The
  Supervisory Board discussed with the Board of Management the overall strategy
  including objectives, associated risks, and the mechanisms for controlling financial
  risks. In three separate sessions the strategy of Pharma, Coatings, and Chemicals
  was reviewed and discussed in more detail. The Supervisory Board also discussed
  and consented to the Companys overall strategy.

The Board of Management
  keeps the Supervisory Board regularly informed of intended organizational changes
  and appointments of senior managers.

In December 2004 the full
  Supervisory Board received training on the new IFRS requirements and their consequences
  for the Company.

Audit CommitteeThe Audit Committee
  currently consists of four members and was chaired by Mr. Fentener van Vlissingen
  until his resignation. He was succeeded as chairman by Lars Thunell. Mr. van
  den Brink filled the vacancy caused by the resignation of Mr. Fentener van Vlissingen
  in May 2004.

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The Audit Committee had seven regular meetings in 2004. The CEO, the CFO, the Director of Corporate Control, the internal auditor, and the lead partner of the external auditor KPMG attended all regular meetings. In addition, the Audit Committee met with only the CEO and CFO being present, and held a meeting with only the external auditor.

The Audit Committee regularly discussed financial statements, as well as the Annual Report on Form 20-F for SEC filing, internal and external control procedures, risk management, Internal Auditing reports, and the external auditors performance and independence. Before the announcement of quarterly results, the Audit Committee was informed of the figures and consulted on the report and press release to be published.

In addition, in 2004 considerable time was spent on corporate governance. With the assistance of an external advisor, the Committee reviewed how it functioned and proposed a revised Charter, which was later approved by the Supervisory Board and included in the Rules of Procedure.

|The Audit Committee further
    discussed such items as:
|--------------------------------------------------------
|•                                                       
|•                                                       
|•                                                       
|•                                                       
|•                                                       

Remuneration Committee and Nomination Committee
The Remuneration and Nomination Committee was split into two separate committees in December 2004. The two Committees consist of the same four members. The Committees met three times in 2004. Mr. Loudon chairs the Remuneration Committee and the Nomination Committee.

The Nomination Committee made proposals for the succession of Mr. van Veen in 2005 and reviewed the composition and division of tasks within the Board of Management in view of Mr. Van der Meers retirement in 2005. The Remuneration Committee made a recommendation on the remuneration and remuneration policy for the members of the Board of Management, including personal targets. The Supervisory Board approved the Committees recommendations and will submit the remuneration policy to the General Meeting of Shareholders for adoption. A performance-related share plan and a revised performance-related option plan, both for Executives, will also be submitted for approval to the General Meeting of Shareholders.

For the principal elements
  of the Supervisory Boards remuneration report reference is made to page
  92.

Changes in the Supervisory Board
At theGeneral Meeting of Shareholders of April 22, 2004, the total number of Supervisory Board members was reduced by one and fixed at ten. Effective May 1, 2004, Frits Fentener van Vlissingen stepped down, having reached the age limit.

Also effective May 1, 2004, Dolf van den Brink,
    Professor Financial Institutions at the University of Amsterdam and former
    member of the Managing Board of ABN AMRO Bank, was appointed to the Supervisory
    Board for a four-year term. Aarnout Loudon and Virginia Bottomley were reappointed
for, respectively, a two-year and a four-year period.

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At theGeneral
  Meeting of Shareholderson
  April 21, 2005, Maarten van Veen resigned after having served on the Board for
  seven years.

The General Meeting of Shareholders approved that Maarten van den Bergh, nonexecutive chairman of the Board of Lloyds TSB Group and former president of Royal Dutch Petroleum Company and vice-chairman of the Committee of Managing Directors of the Royal Dutch/Shell Group, was appointed to the Supervisory Board for a four-year term to succeed Mr. van Veen.

Also at this meeting, Abraham Cohen was stepping down from the Supervisory Board. The Rules of Procedure of the Supervisory Board provide that in principle members will step down after having served three four-year terms. However, given the challenges Akzo Nobels Pharma business is facing and will continue to face in the next few years and given the importance of the U.S. market in general, the Supervisory Board considered an exception to this general rule to be in the best interest of the Company. The General Meeting of Shareholders reappointed Mr. Cohen for a four-year period.

All nominations were made in accordance with the membership profile, which can be found on Akzo Nobels website.

All Supervisory Board members meet the applicable independence requirements of the Dutch Corporate Governance Code, except for Mr. van Lede and Mr. van den Brink. However, the Supervisory Board considers Mr. van den Brink to be independent under the Code. Reference is made to the details of the Supervisory Board members on pages 85 and with respect to Mr. van den Brinks independence to the explanation in the Corporate Governance chapter on page 83.

Board of Management

General
The Board of Management is entrusted
with the management of the Company, which means, among other things, that it
defines the strategic direction, establishes the policies, and manages the Companys
day-today operations. The members of the Board of Management collectively manage
the Company and are responsible for its performance. They are jointly and individually
accountable for all decisions made by the Board of Management. In performing
its duties, the Board of Management is guided by the interest of the Company
and its affiliated enterprise.

The Chairman leads the Board of Management in its overall management of the Company to achieve its performance goals and ambitions. He is the main point of liaison with the Supervisory Board. The CFO is specifically responsible for the Companys financial affairs. The Board of Management has members with specific responsibility for the main product areas: Pharma, Coatings, and Chemicals.

Akzo Nobels organizational model is based on business units. The General Managers are responsible for the performance of their business units. To safeguard consistency and coherence for the total organization, Corporate Directives have been established by the Board of Management.

For effective steering of the strategy and
    operations of the business units, the Board of Management has delegated certain
    authorities to Board Committees for Pharma, Coatings, and Chemicals. Furthermore,
    a Pensions Board Committee oversees the general pension policies to be implemented
    in the various pension plans of the Company. Board Committees consist of
    at least two Board members. Delegation of authorities to Board Committees
and individual Board members is laid down in an internal authority schedule.

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The Board of Management appoints its own secretary, which may be and at this moment is the same person as the Secretary of the Supervisory Board. This is Mr. G.H. (Han) Jalink (1949, Dutch), serving in this capacity since 2002.

The composition of the Board of Management
on May 31, 2005 was as follows:

|                    |                       |                       
|------------------- | --------------------- | ----------------------
|                    |                       | Served in such or     
|Board of Management | Position with Company | similar capacity since
|                    |                       |                       
|Hans Wijers         | Chairman and CEO      | 2002                  
|(1951, Dutch)       |                       |                       
|Rob Frohn           | CFO                   | 2004                  
|(1960, Dutch)       |                       |                       
|Toon Wilderbeek     | Pharma                | 2002                  
|(1950, Dutch)       |                       |                       
|Leif Darner         | Chemicals             | 2004                  
|(1952, Swedish)     |                       |                       
|                    |                       |                       

Effective May 1, 2005, Rudy van der Meer retired
from the Board of Management.

Appointment, Conflicts of InterestThe General Meeting of Shareholders appoints the members of the Board of Management. The Meeting of Holders of Priority Shares is entitled to make binding nominations for such appointments. As a rule, the members of the Board of Management step down at the Annual General Meeting in the year in which they reach the age of 62. Members of the Board of Management can be removed from office by the General Meeting of Shareholders.

Starting with the appointments made in 2004, members of the Board of Management are appointed for four-year terms, with the possibility of reappointment. This is in line with the Codes provision II.1.1. However, the contracts of the incumbent members of the Board of Management were not renegotiated, as this was not felt to be in the interest of the Company.

In the amendment of the Articles of Association, the maximum four-year term for members of the Board of Management appointed as of 2004 will be formalized.

The Meeting of Holders of Priority Shares has the right to make binding nominations for the appointment of members of the Board of Management and the Supervisory Board. The priority shares are held by the Akzo Nobel Foundation. The Board of the Akzo Nobel Foundation consists of the members of the Board of Management and the Supervisory Board.

According to the Codes recommendation
    (provision IV.1.1) the General Meeting of Shareholders should be able to
    pass a resolution to cancel the binding nature of a nomination for the appointment
    of the Supervisory Board or the Board of Management. This provision also
    states that the Company may require that such resolution will be subject
    to a quorum, which may not exceed one third of the issued capital. In this
    connection it is noted that the Companys Articles of Association provide
    that the holders of priority shares have the power to draw up binding nominations
    for appointments as aforesaid. These nominations cannot be canceled by the
General Meeting of Shareholders. The Company subscribes to the Codes

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91

principle in general and therefore
  proposes additional provi sions relating to the nomination procedures. In the
  amendment of the Articles of Association, aside from the existing nomination
  powers of the Meeting of Holders of Priority Shares, an additional nomination
  procedure will be introduced. This means that in normal circumstances the members
  of the Supervisory Board and the Board of Management will be appointed on the
  basis of a nonbinding nomination by the Supervisory Board. The Board of the
  Akzo Nobel Foundation has confirmed its intention to use its binding nomination
  rights only in case of exceptional circumstances, such as in the event of a
  (threatened) hostile takeover. In both of the aforesaid situations, resolutions
  to appoint a person as a member of the Supervisory Board or the Board of Management
  require a simple majority. Of course, shareholders meeting the requirements
  of the Articles of Association also have the right to nominate members of the
  Supervisory Board or the Board of Management. Such appointments will require
  a two-thirds majority representing at least fifty percent of the outstanding
  share capital.

Although a deviation from provision IV.1.1
    of the Code, the Supervisory Board and the Board of Management believe the
    Company is introducing provisions in this respect that will enhance the continuity
    of the Companys management and policies. In this connection it is observed
    that the Board of the Foundation will consist only of those members of the
    Supervisory Board who are not a member of the Audit Committee.

Members of the Board of Management
  are allowed to hold a maximum of two supervisory board memberships in other
  companies. This is in line with the Code (provision II.1.7). The exception to
  this rule is that in the year prior to their retirement, Board of Management
  members are allowed to hold more than two supervisory board memberships in order
  to allow them to prepare for their postretirement activities, provided this
  does not interfere with the execution of their tasks as members of the Board
  of Management. Acceptance of external supervisory board memberships is subject
  to approval by the Supervisory Board, which power has been delegated to the
  Chairman of the Supervisory Board.

The handling of (potential)
  conflicts of interest between the Company and members of the Board of Management
  is governed by the Rules of Procedure for the Board of Management. Decisions
  to enter into transactions under which Board of Management members would have
  conflicts of interests that are of material significance to the Company and/or
  to the relevant Board of Management member require the approval of the Supervisory
  Board.

Changes in the Board of Management

Effective May 1, 2004, Fritz Fröhlich
    retired as CFO and Deputy Chairman of the Board of Management. Rob Frohn,
    who until the end of 2003 was General Manager of Surface Chemistry, succeeded
    him as a member of the Board of Management and CFO.

Dag Strömqvist retired from the Board
    of Management effective July 1, 2004.

Leif Darner, until May 1, 2004, General Manager
    of Marine & Protective Coatings, succeeded Mr. Strömqvist.

Rudy van der Meer retired effective May 1,
    2005. It was decided not to fill this vacancy. Hans Wijers will take responsibility
    for Akzo Nobels Coatings businesses in addition to his duties as CEO.

At the General Meeting of Shareholders on
    April 21, 2005, it was decided to decrease the number of members of the Board
    of Management to four.

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|B. | COMPENSATION
|-- | ------------

Remuneration in 2004

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 are specified
    below.In 2004, the aggregate remuneration
    of the Supervisory Board and Board of Management was EUR 6.5 million. The
    aggregate amount set aside or accrued by the Company in 2004 to provide pension,
    retirement or similar benefits for those individuals was EUR 1.4 million.

Supervisory Board

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

|                                |        |  |        | 
|------------------------------- | ------ |  | ------ | 
|In euros                        | 2004   |  | 2003   | 
|                                |        |  |        | 
|Aarnout Loudon, Chairman1)      | 59,000 |  | 56,100 | 
|Frits Fentener van Vlissingen3) | 16,000 |  | 47,200 | 
|Maarten van Veen1)4)            | 48,000 |  | 47,200 | 
|Virginia Bottomley1)            | 48,000 |  | 45,700 | 
|Dolf van den Brink5)            | 32,000 |  |        | 
|Uwe-Ernst Bufe2)                | 48,000 |  | 32,000 | 
|Abraham Cohen2)                 | 48,000 |  | 47,200 | 
|Cees van Lede                   | 41,000 |  | 27,300 | 
|Alain Mérieux                   | 41,000 |  | 41,000 | 
|Lars Thunell2)                  | 48,000 |  | 47,200 | 
|Karel Vuursteen1)               | 48,000 |  | 45,700 | 
|                                |        |  |        | 

|1) | Member of the Remuneration Committee and
        member of the Nomination Committee.        
|-- | --------------------------------------------------------------------------------------------
|2) | Member of the Audit Committee.                                                              
|3) | Until May 1, 2004, Deputy
      Chairman and member of the Audit Committee.                 
|4) | From May 1, 2004, Deputy
      Chairman.                                                    
|5) | From May 1, 2004, member of the Supervisory
        Board and member of the Audit Committee.

In accordance with the articles of association
    and good corporate governance practice, the remuneration of Supervisory Board
    members is not dependent on the results of the Company. The Company does
    not grant stock options and/or shares to its Supervisory Board members and
    does not provide loans to them. Travel expenses and facilities for members
    of the Supervisory Board are borne by the Company and reviewed by the Audit
    Committee.

Former members of the Supervisory Board did
    not receive any remuneration.

Board of Management

The remuneration policy and the individual
    service contracts of the members of the Board of Management are determined
    by the Supervisory Board within the framework of the remuneration policy
    adopted by the General Meeting of Shareholders. The Remuneration Committee
    prepares all relevant information and provides advice to the Supervisory
    Board on all matters relating to the remuneration and service contracts of
    the Board of Management.

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The objective of the Companys remuneration
    policy is to provide remuneration in a form that will attract, retain, and
    motivate the members of the Board of Management as top managers of a major
    international company. In the determination and differentiation of the remuneration
    levels of the CEO, the CFO, 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 Dutch multinational companies.
    To ensure that remuneration is linked to performance, a significant proportion
    of the remuneration package is variable and dependent on short- and long-term
    performance of the individual Board member and the Company.

Remuneration Structure
  2004

The total remuneration package of the members
    of the Board of Management consists of:

|– | base salary                                  
|- | ---------------------------------------------
|– | performance-related short-term incentive     
|– | performance-related stock options            
|– | performance-related restricted shares        
|– | pension provisions                           
|– | other benefits, including severance payments.

The Remuneration and Nomination Committee considers
    the remuneration structure each year to ensure it meets the objectives of
    the remuneration policy.

In 2004, the value of fixed and variable components
    at target levels breaks down as follows:

|         |     |  |             |  |         | 
|-------- | --- |  | ----------- |  | ------- | 
|         |     |  | Other Board |  |         | 
|         | CEO |  | members     |  | Average | 
|         |     |  |             |  |         | 
|Fixed    | 39% |  | 43%         |  | 42%     | 
|Variable | 61% |  | 57%         |  | 58%     | 
|         |     |  |             |  |         | 

This breakdown is in line with the policy
    to provide a highly performance-related remuneration package. The variable
    components are related to stretching performance targets. Therefore, the
    reward related to these components may be lower than indicated. Only in the
    situation that actual performance is above targeted performance may a reward
    be granted that is higher than indicated.

Base Salary 2004The Supervisory
  Board decided not to adjust base salary levels for 2004. The base salary for
  members of the Board of Management appointed in 2004 amounted to EUR 460,500
  and is equal to the base salaries of the other members of the Board of Management,
  with the exception of the CEO.

Short-Term Incentive (annual
  bonus) 2004The short-term incentive
  (annual bonus) as described in the remuneration policy was applied for the first
  time in 2004.

The members of the Board of Management, going
    forward in that position during the whole of 2005, have informed the Remuneration
    Committee that they have the intention, during the next open period, to invest
    50% of their 2004 net bonus in Akzo Nobel shares, which will be held for
    a period of not less than three years.

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Long-Term Incentives
  2004In 2004 the Remuneration
  Committee fixed the number of options relating to the option arrangement 20012011.
  These options were granted on the condition that the number of options could
  (after three years) be reduced by a maximum of 50% if certain performance criteria
  were not met or not sufficiently met.

The Committee has fixed
  the number of options on the basis of the average of the EVA on Invested Capital
  during the years 20012003. The outcome of this calculation resulted in
  a discount of 5.6% of 50% of the number of granted options. Consequently, 97.2%
  of the number of options became unconditional.

Under the new option plan
  applicable as from the year 2004, 23,000 conditional options were granted to
  the CEO and 15,000 to the other members of the Board of Management. The members
  of the Board of Management who retired in 2004 received 20,000 (Mr. Fröhlich)
  and 10,000 options (Mr. Strömqvist).

The number of performance-related
  shares granted to the members of the Board of Management in 2004 amounted to
  33,000 for the CEO and 22,000 for the other members. Board members who retired
  in 2004 did not receive any performance-related shares.

Stock Options1In 2002, stock options were
  granted to the Board of Management with a term of ten years and a performance-dependent
  vesting period of three years. After three years, the number of options granted
  can be decreased by a maximum percentage of 50, if specific performance criteria
  are not met or not sufficiently met. From 2003 onwards, options granted expire
  after seven years.

All outstanding options
  from the series 1999, which were exercisable immediately upon grant, lapsed
  in 2004.

The stock options
      granted in 2004 are conditional during a period of three years after grant
      and have a total term (including the three-year conditional period) of
      seven years. The exercise price of the stock options is the
      Euronext Amsterdam opening price on the first day after the General Shareholders Meeting
      that the Akzo Nobel share is quoted ex dividend (2004: EUR 31.45).

Members of the Board of
  Management held no Akzo Nobel share options other than the stock options mentioned
  in this Annual Report.

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

The pension plan for all
  Dutch members of the Board of Management appointed after January 1, 2002, is
  based on an income- and age-related defined contribution plan.

LoansAs a policy and as required
  by the Sarbanes-Oxley Act, the Company does not provide loans to members of
  the Board of Management. There are currently no loans outstanding.

|1 | For a description of
        the option plan and the Akzo Nobel Employee Share Plan reference is made
        to Note 13 of the Notes to the Consolidated Financial Statements of Akzo
        Nobel.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Contracts of EmploymentStarting with the appointments
  made in 2004, members of the Board of Management are appointed for four-year
  terms, with the possibility of reappointment.

Former Members of the
  Board of ManagementCharges relating to former
  members of the Board of Management amounted to EUR 547,900 in 2004, mainly related
  to pension expenses (2003: EUR 656,700).

Overview of Remuneration
  2004The members of the Board
  of Management received the following salaries, performance related bonuses and
  other emoluments1.

|                                             |         |  |         | 
|-------------------------------------------- | ------- |  | ------- | 
|In euros                                     | 2004    |  | 2003    | 
|                                             |         |  |         | 
|Hans Wijers, Chairman
      from May 1, 2003 |         |  |         | 
|Salary                                       | 644,900 |  | 614,000 | 
|Bonus                                        | 628,500 |  | 338,400 | 
|Other emoluments                             | 6,000   |  | 5,300   | 
|                                             |         |  |         | 
|Leif Darner, from July
      1, 2004         |         |  |         | 
|Salary                                       | 230,300 |  |         | 
|Bonus                                        | 207,300 |  |         | 
|Other emoluments                             | 3,100   |  |         | 
|                                             |         |  |         | 
|Rob Frohn, from May 1,
      2004            |         |  |         | 
|Salary                                       | 307,000 |  |         | 
|Bonus                                        | 276,300 |  |         | 
|Other emoluments                             | 4,300   |  |         | 
|                                             |         |  |         | 
|Rudy van der Meer                            |         |  |         | 
|Salary                                       | 460,500 |  | 460,500 | 
|Bonus                                        | 392,400 |  | 235,500 | 
|Other emoluments                             | 3,000   |  | 5,000   | 
|                                             |         |  |         | 
|Toon Wilderbeek                              |         |  |         | 
|Salary                                       | 460,500 |  | 460,500 | 
|Bonus                                        | 414,500 |  | 240,000 | 
|Other emoluments                             | 6,000   |  | 5,000   | 
|                                             |         |  |         | 
|Fritz Fröhlich,
      until May 1, 2004      |         |  |         | 
|Salary                                       | 184,100 |  | 552,200 | 
|Bonus                                        | 129,900 |  | 284,000 | 
|Other emoluments                             | 1,700   |  | 6,400   | 
|                                             |         |  |         | 
|Dag Strömqvist,
      until July 1, 2004     |         |  |         | 
|Salary                                       | 214,900 |  | 460,500 | 
|Bonus                                        | 144,600 |  | 235,500 | 
|Other emoluments                             | 1,400   |  | 4,500   | 
|                                             |        

|1 | Other emoluments concern
        employers charges (social contributions and healthcare contributions).
|- | --------------------------------------------------------------------------------------------------------

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After deduction of any
  contributions made by members of the Board of Management, pension expenses borne
  by the Company were as follows:

|                                       |         |  |         | 
|-------------------------------------- | ------- |  | ------- | 
|In euros                               | 2004    |  | 2003    | 
|                                       |         |  |         | 
|Hans Wijers                            | 281,300 |  | 198,100 | 
|Leif Darner, from July
        1, 2004 | 44,500  |  |         | 
|Rob Frohn, from May
        1, 2004    | 119,900 |  |         | 
|Rudy van der Meer                      | 15,100  |  | 359,300 | 
|Toon Wilderbeek                        | 300,700 |  | 237,200 | 
|Fritz Fröhlich                         | 463,900 |  | 436,200 | 
|Dag Strömqvist                         | 95,600  |  | 286,800 | 
|                                       |         |  |        

The aggregate number of
  options held by the members of the Board of Management at December 31, 2004,
  is as follows:

|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|-------------------------------- | ----- |  | -------------- |  | -------------------- |  | ------------- |  | ------------- |  | -------------------- |  | ----------------------
|                                 | Year  |  | Exercise       |  | Outstanding
      at |  | Granted       |  | Lapsed        |  | Outstanding
      at |  | Expiry
        date   
|                                 | of    |  | price
      in |  | December
      31,   |  | in
      2004 |  | in
      2004 |  | December
      31,   |  |                       
|Number of options                | issue |  | EUR            |  | 2003                 |  |               |  |               |  | 2004                 |  |                       
|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|Hans Wijers                      | 2002  |  | 46.53          |  | 14,850               |  |               |  |               |  | 14,850               |  | April
        25, 2012
|                                 | 2003  |  | 19.51          |  | 29,700               |  |               |  |               |  | 29,700               |  | April
        22, 2010
|                                 | 2004  |  | 31.45          |  |                      |  | 23,000        |  |               |  | 23,000               |  | April
        25, 2011
|Value outstanding                |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|options, in EUR                  |       |  |                |  |                      |  |               |  |               |  | 568,800              |  |                       
|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|Leif Darner                      | 1999  |  | 42.50          |  | 4,500                |  |               |  | 4,500         |  |                      |  |                       
|                                 | 2000  |  | 44.82          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        27, 2005
|                                 | 2001  |  | 46.75          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        30, 2006
|                                 | 2002  |  | 46.53          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        25, 2009
|                                 | 2003  |  | 19.51          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        22, 2010
|                                 | 2004  |  | 31.45          |  |                      |  | 15,000        |  |               |  | 15,000               |  | April
        25, 2011
|Value outstanding                |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|options, in EUR                  |       |  |                |  |                      |  |               |  |               |  | 182,900              |  |                       
|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|Fritz Fröhlich,
      retired at |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|May 1, 2004                      | 1999  |  | 42.50          |  | 27,000               |  |               |  | 27,000        |  |                      |  |                       
|                                 | 2000  |  | 44.82          |  | 29,700               |  |               |  |               |  | 29,700               |  | April
        27, 2010
|                                 | 2001  |  | 46.75          |  | 29,700               |  |               |  | 832           |  | 28,868               |  | April
        30, 2011
|                                 | 2002  |  | 46.53          |  | 29,700               |  |               |  |               |  | 29,700               |  | April
        25, 2012
|                                 | 2003  |  | 19.51          |  | 29,700               |  |               |  |               |  | 29,700               |  | April
        22, 2010
|                                 | 2004  |  | 31.45          |  |                      |  | 20,000        |  |               |  | 20,000               |  | April
        25, 2011
|Value outstanding                |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|options, in EUR                  |       |  |                |  |                      |  |               |  |               |  | 802,000              |  |                       
|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|                                 |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|Rob Frohn                        | 1999  |  | 42.50          |  | 1,200                |  |               |  | 1,200         |  |                      |  |                       
|                                 | 2000  |  | 44.82          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        27, 2005
|                                 | 2001  |  | 46.75          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        30, 2006
|                                 | 2002  |  | 46.53          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        25, 2009
|                                 | 2003  |  | 19.51          |  | 4,950                |  |               |  |               |  | 4,950                |  | April
        22, 2010
|                                 | 2004  |  | 31.45          |  |                      |  | 15,000        |  |               |  | 15,000               |  | April
        25, 2011
|Value outstanding                |       |  |                |  |                      |  |               |  |               |  |                      |  |                       
|options, in EUR                  |       |  |                |  |                      |  |               |  |               |  | 182,900              |  |                       
|                                

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|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      | 97                   
|-------------------------------- |  | --------- | ---- | ------------------ | ---- | ------------------------ | ---- | ----------------- | ---- | ----------------- | ---- | ------------------------ | ---- | ---------------------
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|                                 |  | **Year**  | **** | **Exercise**       | **** | **Outstanding
      at** | **** | **Granted**       | **** | **Lapsed**        | **** | **Outstanding
      at** | **** | **Expiry
      date**
|                                 |  | **of**    | **** | **price
      in** | **** | **December
      31,**   | **** | **in
      2004** | **** | **in
      2004** | **** | **December
      31,**   | **** | ****                 
|Number of options                |  | **issue** | **** | **EUR**            | **** | **2003**                 | **** | ****              | **** | ****              | **** | **2004**                 | **** | ****                 
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|Rudy van der Meer                |  | 1999      |      | 42.50              |      | 24,000                   |      |                   |      | 24,000            |      |                          |      |                      
|retired at May 1,
      2005     |  | 2000      |      | 44.82              |      | 26,400                   |      |                   |      |                   |      | 26,400                   |      | April 27,
      2010 
|                                 |  | 2001      |      | 46.75              |      | 26,400                   |      |                   |      | 739               |      | 25,661                   |      | April 30,
      2011 
|                                 |  | 2002      |      | 46.53              |      | 26,400                   |      |                   |      |                   |      | 26,400                   |      | April 25,
      2012 
|                                 |  | 2003      |      | 19.51              |      | 26,400                   |      |                   |      |                   |      | 26,400                   |      | April 22,
      2010 
|                                 |  | 2004      |      | 31.45              |      |                          |      | 15,000            |      |                   |      | 15,000                   |      | April 25,
      2011 
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|Value outstanding                |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|options, in EUR                  |  |           |      |                    |      |                          |      |                   |      |                   |      | 693,600                  |      |                      
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|Dag Strömqvist,
      retired at |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|July 1, 2004                     |  | 1999      |      | 42.50              |      | 6,000                    |      |                   |      | 6,000             |      |                          |      |                      
|                                 |  | 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                   |      |                   |      | 739               |      | 25,661                   |      | April 30,
      2011 
|                                 |  | 2002      |      | 46.53              |      | 26,400                   |      |                   |      |                   |      | 26,400                   |      | April 25,
      2012 
|                                 |  | 2003      |      | 19.51              |      | 26,400                   |      |                   |      |                   |      | 26,400                   |      | April 22,
      2010 
|                                 |  | 2004      |      | 31.45              |      |                          |      | 10,000            |      |                   |      | 10,000                   |      | April 25,
      2011 
|Value outstanding                |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|options, in EUR                  |  |           |      |                    |      |                          |      |                   |      |                   |      | 615,700                  |      |                      
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|                                 |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|Toon Wilderbeek                  |  | 1999      |      | 42.50              |      | 4,500                    |      |                   |      | 4,500             |      |                          |      |                      
|                                 |  | 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 
|                                 |  | 2003      |      | 19.51              |      | 26,400                   |      |                   |      |                   |      | 26,400                   |      | April 22,
      2010 
|                                 |  | 2004      |      | 31.45              |      |                          |      | 15,000            |      |                   |      | 15,000                   |      | April 25,
      2011 
|Value outstanding                |  |           |      |                    |      |                          |      |                   |      |                   |      |                          |      |                      
|options, in EUR                  |  |           |      |                    |      |                          |      |                   |      |                   |      | 484,700                  |      |                      
|                                

In 2004, no stock options
    were exercised by the members of the Board of Management.

Remuneration Policy
  2005

The Companys remuneration
  policy, including all structures and policies related to the remuneration and
  employment contracts of the Board of Management, was reviewed in light of the
  Dutch Corporate Governance Code. As a consequence, the Supervisory Board adjusted
  the remuneration packages of the Board of Management. The total remuneration
  package of the members of the Board of Management consists of:

| | base salary                                          
|- | -----------------------------------------------------
| | performance-related
        short-term incentive     
| | performance-related
        stock options            
| | performance-related
        restricted shares        
| | pension provisions                                   
| | other benefits, including
        severance payments.

To ensure overall competitiveness
  of the remuneration provided to the Board of Management, the remuneration levels
  of the Board of Management are assessed against a peer group. The Remuneration

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|98
|--
|  

Committee consults professional
    independent remuneration experts to ensure an appropriate comparison. Statistical
    models are used to modify the data of the peer group companies to assume
    a similar size as Akzo Nobel and a similar scope of responsibilities of the
    Board of Management. This remuneration package is based on a remuneration
    policy that will be submitted for adoption to the General Meeting of Shareholders
    in April 2005. It should be noted that the performance-related option and
    share plans for members of the Board of Management were approved by shareholders
    in April 2004.

It is the Companys
  policy to gradually move toward overall remuneration levels that are at the
  median level of the external benchmark of the following peer group of companies:

| | Aegon         |  | Royal DSM     
|- | ------------- | - | --------------
| | Heineken      |  | Wolters Kluwer
| | Reed Elsevier |  | Royal Numico  
| | TPG           |  | Royal Ahold   
| | VNU           |  | KPN           

Royal Ahold and KPN
  are not included in the peer group for the CEO.

In line with the Companys
  remuneration policy, variable performance-related remuneration will be an important
  part of total compensation.

Base SalaryThe base salary
  levels of the members of the Board of Management are almost without exception
  at or below the lower quartile of the peer group of companies used in the external
  comparison.

While the focus on variable
  performance-related compensation elements will continue, the base salaries need
  to be more aligned with the market median in order to remain competitive. The
  Supervisory Board considers each year whether the circumstances allow a reconsideration
  of the base salaries.

Short-Term Incentive
  (Annual Bonus)The target short-term incentive
  (annual bonus) will be 80% of the base salary for the CEO and 65% of the base
  salary for the other members of the Board of Management. The bonus opportunity
  is linked to EVA in order to encourage the Board of Management to create long-term
  value for the Companys shareholders and stakeholders. The target EVA for
  the bonus will be determined annually by the Supervisory Board and will be based
  on budget. The Supervisory Board ensures that targets are realistic and sufficiently
  stretching. EVA performance accounts for 70% of the annual bonus opportunity.
  The remaining 30% of the bonus opportunity will be based on individual targets.
  The threshold level of the EVA-related part of the bonus is 80% of the targeted
  EVA. In case of performance below the threshold level there will be no payout.
  The maximum bonus in any one year will not exceed 1.5 times the target bonus.
  The maximum bonus for the CEO will not exceed 120% of his base salary and 100%
  for the other members of the Board of Management. TheCompany
  will not disclose the targets as these qualify as commercially sensitive information.
  This bonus scheme is fully aligned with the bonus arrangement for Executives
  at Akzo Nobel.

Long-Term IncentivesThe long-term incentives
  plan intends to stimulate the performance-driven culture at Akzo Nobel and is
  linked to stretching performance targets. This plan was presented in 2004 and
  consists of performance stock options and performance shares. Both schemes were
  approved by the General Meeting of Shareholders in April 2004.

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|99
|--
|  

The stock option plan will
    be conditional on performance upon vesting. The number of stock options that
    will be granted to the Board of Management is determined by the Supervisory
    Board. Market levels as well as Company-specific circumstances will be taken
    into account in determining the appropriate conditional number of options
    to be granted. The actual number of options which the Board of Management
    receives depends on the Companys performance during a three-year vesting
    period. The total option term is seven years.

The performance measure
  used to determine the number of options that vest is set by the average of the
  results of the comparison between planned and realized EVA on Invested Capital
  (EOI) or economic value created in relation to invested capital during the period
  of three consecutive years. This measure is used to encourage EVA performance
  over a longer period of time. The EOI targets are set annually by the Supervisory
  Board. These specific targets will not be disclosed as they qualify as commercially
  sensitive information.

As a policy, the exercise
  price of the stock options is the Euronext Amsterdam opening price on the first
  day after the General Meeting of Shareholders that the Akzo Nobel share is quoted
  ex dividend.

Stock options will not
  vest below 80% of the targeted EOI. The number of granted options is also the
  maximum number of options that vest upon achieving the targeted performance.
  If targeted performance is exceeded, there will be no increase in the number
  of options that vest.

The expected value of performance
  stock options for the Board of Management is based on the Binomial Option Pricing
  Model, which is in line with international accounting regulations. The calculations
  for the valuation will be reviewed by the Companys auditors.

The aim of the performance
  share plan is to align the interests of the Board of Management and the shareholders
  in order to improve the performance of the Company. Under the plan, shares will
  be granted to the members of the Board of Management provided that certain performance
  targets are achieved and the contract of employment is continued. These targets
  are determined by the Supervisory Board in the first quarter of the year of
  issue on the basis of the weighted average of the price of the Akzo Nobel share
  increased by the dividend paid over a period of three years (Total Shareholder
  Return). The TSR will be compared with the following peer group:

| | Bayer                        |  | Merck KGaA    
|- | ---------------------------- | - | --------------
| | CIBA Specialty Chemicals     |  | Novo Nordisk  
| | Clariant                     |  | PPG Industries
| | Degussa                      |  | Schering      
| | Dow Chemical Company         |  | Serono        
| | Royal DSM                    |  | Solvay        
| | Dupont de Nemours            |  | UCB           
| | Imperial Chemical Industries |  | Valspar       

There have been no adjustments
  in the peer group as published in the Annual Report for 2003. Based on this
  peer group, Akzo Nobel will be ranked for its total return to shareholders.
  Independent external specialists will conduct this analysis to determine the
  number of shares that will vest over a three-year period. The determination
  of the final ranking (and thus the vesting of shares) will be reviewed by the
  Companys auditors at the end of the performance period.

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100

Given the Companys historical performance, market expectations, and strategy, the following performance incentive zone will apply. There will be no shares that vest for a position below the tenth position of the sixteen peer companies. For the fifth position, all shares conditionally granted will vest. The maximum number of shares will vest only for the first position within the peer group. This is 150% of the target value of the number of shares conditionally granted.

The expected value of the performance share plan is based on probability analyses. In valuating its incentive plans, the Company is assisted by independent external advisers. All valuations are reviewed by the Companys auditors.

PensionsThe pension plan
  for all the members of the Board of Management appointed after January 1, 2002,
  is based on an income- and age-related defined contribution plan. The available
  premium is invested with a pension fund. The pension payment at pension age
  depends on the premiums received and the investment results during the period.
  The premium percentages to be paid for the Board member concerned are fixed
  by the Supervisory Board taking into account pension buildup (internally or
  externally) in the period preceding the appointment as Board member and the
  rules applicable in the countries of origin. External reference data can be
  used in determining market competitive levels of pension arrangements. If applicable,
  pension rights built up in the period preceding Board membership will be adjusted
  in conformity with the relevant rules and regulations. Members of the Board
  of Management normally retire in the year that they reach the age of 62. Members
  of the Board of Management pay a personal contribution.

C. BOARD PRACTICES

Reference is made to information under Item 6.A.

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.

|          |                                                    | 
|--------- | -------------------------------------------------- | 
|          | Number
      of employees per segment, December 31 | 
|          | 2004                                               | 
|          |                                                    | 
|Pharma    | 19,400                                             | 
|Coatings  | 29,000                                             | 
|Chemicals | 11,900                                             | 
|Other     | 1,100                                              | 
|          |                                                    | 
|Total     | 61,400                                             | 
|          |                                                    | 

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101

|                         |                                                                  |  |        |  |        | 
|------------------------ | ---------------------------------------------------------------- |  | ------ |  | ------ | 
|                         | Number of employees by country
          or region, December 31, | 
|                         | 2004                                                             |  | 2003   |  | 2002   | 
|                         |                                                                  |  |        |  |        | 
|The Netherlands          | 11,300                                                           |  | 12,700 |  | 13,000 | 
|Germany                  | 4,100                                                            |  | 4,100  |  | 4,700  | 
|Sweden                   | 4,000                                                            |  | 4,300  |  | 4,500  | 
|United Kingdom           | 4,200                                                            |  | 4,600  |  | 4,900  | 
|Other European countries | 13,500                                                           |  | 13,500 |  | 14,400 | 
|USA and Canada           | 8,400                                                            |  | 9,500  |  | 10,600 | 
|Latin America            | 4,400                                                            |  | 4,600  |  | 4,700  | 
|Asia                     | 9,200                                                            |  | 9,000  |  | 8,800  | 
|Other regions            | 2,300                                                            |  | 2,300  |  | 2,300  | 
|                         |                                                                  |  |        |  |        | 
|Total                    | 61,400                                                           |  | 64,600 |  | 67,900 | 
|                         |                                                                  |  |        |  |        | 

The Company was well prepared to face the multitude of challenges of the year. Ongoing restructuring programs were vigorously pursued, and various new programs were started to address pressure on our earnings.

In 2004, workforce was reduced by 2,650 people due to restructurings. Divestments and acquisitions on balance resulted in a decrease of workforce by 1,610 people. Especially in Coatings, the Company expanded its workforce in those activities and regions where it is growing. We are actively participating in attractive growth in Asia, particularly China, and in Eastern Europe.

To date, the major restructuring programs initiated in 2001 and expanded during 2002, 2003 and 2004, have resulted in a total workforce reduction by 9,000, some 13 percent of the Companys workforce.

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 May 31, 2005, the members of Supervisory Board held 10,697 Akzo Nobel N.V. common shares and did not hold any other Akzo Nobel N.V. securities, except for Mr. Van Lede who still holds options under the Akzo Nobel Stock Option Plan, stemming from the time when he was Chairman of Akzo Nobels Board of Management and for which reference is made to the table below.

The ownership of Akzo Nobel N.V. common shares breaks down as follows:

|                   |       | 
|------------------ | ----- | 
|Number of shares   |       | 
|                   |       | 
|Virginia Bottomley | 500   | 
|Abraham Cohen      | 4,000 | 
|Cees van Lede      | 5,500 | 
|Karel Vuursteen    | 400   | 
|                   |       | 



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102

Former Supervisory Board Member Maarten van Veen held 297 common shares.

At May 31, 2005, Mr. Van Lede held the following options:

|      |  |                |  |                      |  |         |  |                      |  |                      | 
|----- |  | -------------- |  | -------------------- |  | ------- |  | -------------------- |  | -------------------- | 
|Year  |  | Exercise       |  | Outstanding
      at |  | Lapsed  |  | Outstanding
      at |  | Expiry
      date    | 
|of    |  | price
      in |  | December
      31,   |  | in 2004 |  | December
      31,   |  |                      | 
|issue |  | EUR            |  | 2003                 |  |         |  | 2004                 |  |                      | 
|      |  |                |  |                      |  |         |  |                      |  |                      | 
|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               |  | 1,109   |  | 38,491               |  | April 30,
      2011 | 
|2002  |  | 46.53          |  | 39,600               |  |         |  | 39,600               |  | April 25,
      2012 | 
|2003  |  | 19.51          |  | 39,600               |  |         |  | 39,600               |  | April 22,
      2010 | 
|      |  |                |  |                      |  |         |  |                      |  |                      | 

At May 31, 2005, the members of the Board of Management held 13,099 Akzo Nobel N.V. common shares. The ownership breaks down as follows:

|                 |       | 
|---------------- | ----- | 
|Number of shares |       | 
|                 |       | 
|                 |       | 
|Hans Wijers      | 5,934 | 
|Leif Darner      | 1,425 | 
|Rob Frohn        | 3,000 | 
|Toon Wilderbeek  | 2,740 | 
|                 |       | 

Former Board of Management member Rudy van der Meer held 1,183 common shares.

Members of the Board of Management held no options other than the aforementioned stock options.

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. At December 31, 2004, ING held 17,811,647 common shares, representing 6.2 percent of Akzo Nobel common shares outstanding. ING does not have any different voting rights from the rights of other common shareholders.

At year-end 2004, Akzo Nobel estimates that there were approximately 64 percent of its shares (including ADRs) held in the United States, 18 percent in the Netherlands, 5 percent in the United Kingdom, and 13 percent in other countries. About 10 percent of the total number of shares were owned by private investors and 90 percent by institutional investors.

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103

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 conducted at
    arms length with terms comparable to transactions with third parties.

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, 2001 to the date of this report. Likewise there have
    been no material transactions with members of the Supervisory Board or Board
    of Management, any other senior management personnel or any family member
    of such persons. Also no loans have been extended to members of the Supervisory
    Board or Board of Management, any other senior management personnel or any
    family member of such persons.

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 MattersThe 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.

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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 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, 2004, the aggregate environmental related long-term liabilities
    and accruals accounted for amounted to EUR 242 million (December 31, 2003:
    EUR 203 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.

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Antitrust CasesAkzo Nobel is involved in investigations
by the antitrust authorities in the European Union, the United States, and Canada
into alleged violations of the respective antitrust laws for some products in
these jurisdictions. The Company is fully cooperating with the authorities in
these investigations. In addition, the Company is defending civil damage claims
in relation to some of these alleged antitrust violations. At
December 31, 2003, the Company had a provision for antitrust cases of EUR 75
million. Fines, civil damage settlements, and legal costs incurred in 2004 in
connection with these cases amounted to EUR 5 million (2003: EUR 27 million).

In 2004, based on an estimate of probable
    fines, civil damage claims, 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 added EUR 110 million to the provision for antitrust cases. This
    addition to the provision also includes amounts related to the fines of EUR
    21 million, imposed by the European Commission in December 2004 in connection
    with Akzo Nobel companies alleged involvement in a cartel for choline
    chloride, and of EUR 84,5 million, imposed by the European Commission in
    January 2005 for alleged involvement in a monochloroacetic acid cartel. The
    Company has appealed both decisions. At December 31, 2004, the provision
    for antitrust cases amounted to EUR 180 million.

In January 2005 the Company received a Statement
    of Objections by the EU Commission regarding an alleged EU cartel in Hydrogen
    Peroxide and Persalts. In this case as well as in investigations by the US
    DOJ and the Canadian Bureau of Competition into alleged antitrust violations
    in Hydrogen Peroxide in North America the Company is fully cooperating with
    the authorities. The Company believes that discussions with the
    US DOJ regarding a possible disposition of the matter may be finalized in
    the next few months.

It should be understood, however, that in
    light of possible future developments such as (a) the outcome of investigations
    of the various antitrust authorities, (b) potential additional lawsuits by
    (direct or indirect) purchasers, (c) possible future civil settlements, and
    (d) rulings or judgments in the pending investigations or in related civil
    suits, the antitrust cases are likely to 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, if and to the extent that the contingent liabilities
    materialize, they are typically paid over a number of years and the timing
    of such payments cannot be predicted with confidence. The Company believes
    that the 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
    or cash flows in any one accounting period.

With regard to Flexsys, a 50/50 joint venture
    for rubber chemicals with Solutia Inc., authorities in the United States,
    Canada, and Europe are investigating alleged antitrust violations in the
    rubber chemicals industry. We have been informed by Flexsys management that
    it is cooperating with the authorities and will continue to do so. In April
    2005 both Flexsys and the Company received a Statement of Objections by the
    EU Commission. Based on this Statement of Objections the Company has reason
    to believe that Flexsys and the Company will not be fined by the EU Commission.
    We are also aware of a number of purported class actions and individual actions
    having been filed against Flexsys in federal court (by direct purchasers)
    and in various state courts (by alleged indirect purchasers) in the United
    States, and in the provinces of Quebec and Ontario, Canada. We are informed
    that fifteen of the U.S. state court actions have been dismissed against
    Flexsys on various grounds and that motions to dismiss or otherwise dispose
    of the remaining cases are still pending in seven remaining state cases.
    The Company is named as codefendant in the federal actions and in one state
    action in Tennessee. Flexsys has entered a

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settlement agreement with the plaintiffs in
    the federal class action, subject to certain conditions including but not
    limited to final court approval. (currently scheduled for June 21, 2005).
    The settlement resolves the plaintiffs claims against the Company.
    Flexsys has recognized certain provisions for these cases and the Company
    does not believe that it will be liable for funding any judgments against,
    settlements made by, or related costs incurred by Flexsys. The carrying value
    of the Companys investment in Flexsys, however, may be affected by
    these cases.

Other Litigation and
  Contingent Liabilities (Including Remeron®Cases)In December
  2002 summary judgment of noninfringement was obtained by certain generic drug
  manufacturers sued by the Company under the U.S. Hatch-Waxman Act, alleging
  inducement of infringement by such manufacturers of the Company's U.S. patent
  protecting the use of mirtazapine (Remeron®)
  in combination with one or more SSRIs for the treatment of depression. Three
  of the generic drug manufacturers sued by the Company filed antitrust claims
  against the Company as counterclaims in the infringement actions brought by
  the Company. In addition, antitrust claims were filed against the Company in
  the United States on behalf of nine large chain store and grocery store pharmacies,
  and by alleged classes of direct and indirect purchasers of Remeron®.
  These cases were consolidated in the Federal District Court of New Jersey. In
  addition to these cases, the state attorneys general of the States of Texas,
  Florida, and Oregon opened civil investigations to determine if the Company's
  conduct violated their respective laws and the Federal Trade Commission (FTC),
  working with the State Attorneys General, opened a civil investigation to determine
  whether the Company violated federal law.

The action brought by an alleged class of
    direct purchasers remains pending in the Federal District Court in Newark,
    New Jersey. In September 2004, the District Court entered an order dismissing
    three of the five claims brought by those direct purchasers while denying
    the plaintiffs motion for partial summary judgment. In February 2005
    the District Court entered an order denying the plaintiffs motion for
    partial summary judgment on the issue of establishing monopoly power and
    granting the Companys motion for summary judgment with respect to establishing
    monopoly power via the direct evidence approach. The Court indicated
    that it would address the Companys pending motion for summary judgment
    with respect to the traditional market definition approach in
    a future opinion. That motion, as well as the Companys
    motion for summary judgment addressed to plaintiffs two remaining claims,
    remain outstanding, as does the plaintiffs motion for class certification
    and its motion for partial summary judgment with respect to an aspect of
    one of its claims. No trial date has been set. The Company will continue
    to defend the remaining claims vigorously.

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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.Furthermore,
    in the context of the divestitures of businesses the relevant Akzo Nobel
    companies have agreed to indemnify and/or provide guarantees to the buyers
    (and/or their successors and assigns) regarding certain representations and
    warranties or developments.

While the outcome of these claims, disputes,
    indemnifications and guarantees cannot be predicted with certainty, the Company
    believes, based upon legal advice and information received, that the final
    outcome will not materially affect the consolidated financial position of
    the Company but could be material to the Companys result of operations
    or cashflows 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 restructuring
    and impairment charges and results on divestments, 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

From January 1, 2005, Akzo
  Nobel issues its consolidated financial statements in accordance with International
  Financial Reporting Standards (IFRS) and Interpretations. The comparative figures
  for 2004 have been restated accordingly. For the Summary of Significant
  Accounting Policies applied under IFRS and a presentation of the financial
  information for 2004 in accordance with International Financial Reporting Standards,
  see the Companys website. Reference is also made to the report IFRS-based
  reporting for 2004 & implementation of IAS 32 and 39, which has been
  furnished to the SEC, which is incorporated by reference in this Annual Report.

The results for the first quarter of 2005
    were published on April 19, 2005 and a Form 6-K was furnished with the SEC
    on the same date. The report is incorporated by reference in this Annual
    Report.

At the end of March, Organon and Johnson & Johnson
    mutually agreed to end their copromotion with regard to the antipsychotic
    drug Risperdal®and
    replaced it with a financial agreement. The need for this new agreement has
    arisen as a result of Organons development of its own antipsychotic
    products, notably asenapine through an alliance with Pfizer. The new agreement
    has no material impact on Organons future royalty income. Upfront payments
    were concluded of EUR 125 million upon signing and EUR 25 million in January
    2006. Including discounting effects, this resulted in the special benefit
    of EUR 149 million, before taxes.

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.

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|              |            |                            |       |                                 |      
|------------- | ---------- | -------------------------- | ----- | ------------------------------- | -----
|              |            | Amsterdam                  |       | NASDAQ/NMS                      |      
|              |            | High                       |       | Low                             |      
|              |            | In
        euros per share |       | In
        U.S. dollars per ADS |      
|              |            |                            |       |                                 |      
|2000          |            | 59.15                      |       | 37.30                           |      
|2001          |            | 57.85                      |       | 33.73                           |      
|2002          |            | 54.50                      |       | 27.25                           |      
|2003          |            | 32.44                      |       | 16.00                           |      
|2004          |            | 33.79                      |       | 24.87                           |      
|              |            |                            |       |                                 |      
|              |            |                            |       |                                 |      
|2003          | 1stquarter | 32.44                      |       | 16.00                           |      
|              | 2ndquarter | 24.80                      |       | 18.05                           |      
|              | 3rdquarter | 30.68                      |       | 21.88                           |      
|              | 4thquarter | 30.61                      |       | 25.36                           |      
|2004          | 1stquarter | 33.79                      |       | 28.05                           |      
|              | 2ndquarter | 32.30                      |       | 27.85                           |      
|              | 3rdquarter | 30.62                      |       | 24.87                           |      
|              | 4thquarter | 32.68                      |       | 27.92                           |      
|              |            |                            |       |                                 |      
|              |            |                            |       |                                 |      
|December 2004 | 32.68      |                            | 30.96 |                                 | 43.75
|January 2005  | 32.24      |                            | 30.96 |                                 | 41.83
|February 2005 | 34.83      |                            | 31.17 |                                 | 43.15
|March 2005    | 35.54      |                            | 33.27 |                                 | 46.16
|April 2005    |            | 36.28                      |       | 30.82                           |      
|May 2005      |            | 32.84                      |       | 31.25                           |      
|              |            |                            |       |                                 |      

B. PLAN OF DISTRIBUTION

Not applicable.

C. MARKETS

As of May 31, 2005, the Akzo Nobel common
    shares were listed on the following stock exchanges:

|The Netherlands:          | Euronext Amsterdam                       
|------------------------- | -----------------------------------------
|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.

D. SELLING SHAREHOLDERS

Not applicable.

E. DILUTION

Not applicable.

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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 or the Articles) and
    the Dutch Civil Code1.
    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, 2004, 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.

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



|1 | 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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members of both Boards are appointed and
    removed from office by the General Meeting of Shareholders. The Meeting of
    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. Unless the Articles of Association or the Dutch
    Civil Code stipulate otherwise, all resolutions of the General Meeting of
    Shareholders 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.

General Meeting of Shareholders

|The Articles
        usepersons
        entitled to attend shareholders meetingsto
        mean:
|--------------------------------------------------------------------------------------------------
|(a)                                                                                               
|(b)                                                                                               
|(c)                                                                                               
|                                                                                                  

|The Articles usepersons
        entitled to attend shareholders meetings and to vote thereatto
        mean:
|--------------------------------------------------------------------------------------------------------------
|(a)                                                                                                           
|(b)                                                                                                           

With due observance of the mandatory rules
    of law and of the provisions of the Articles, the Board ofManagement
    may issue further instructions concerning the manner in which shareholders
    and other persons entitled to attend shareholders' meetings may exercise
    their rights.

Notice of a General Meeting of Shareholders
    shall be given by the Board of Management or by the Supervisory Board through
    advertisements inserted in one or more national daily newspapers and in the
    Official List of Euronext Amsterdam N.V. (the Amsterdam stock exchange).
    The period intervening between the date on which notice of a meeting is given
    and the date fixed for such meeting, not counting either of these dates,
    shall be at least twenty-one days.

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One or more persons entitled to attend shareholders meetings
    and vote thereat who alone or jointly represent at least one-hundredth part
    of the total issued capital may submit proposals for consideration at the
    General Meeting of Shareholders, provided that such proposals be submitted
    in writing to the Companys office at least six weeks in advance of
    the meeting. However, the Board of Management reserves the right not to place
    proposals from persons mentioned above in this paragraph on the agenda if
    it judges them to be evidently not in the interest of the Company or of an
    enterprise in which the Company has a direct or indirect interest, or if
    the proposed decision on the issue in question is not within the competence
    of the General Meeting of Shareholders.

Article 110 of Book 2 of the Dutch Civil Code
    provides that one or more shareholders, who jointly represent at least one-tenth
    of the issued capital may, on their application, be authorized by the President
    of the Court to convene a General Meeting of Shareholders. The President
    of the Court shall disallow the application if it does not appear to him
    that the applicants have previously requested the Board of Management and
    the Supervisory Board in writing, stating the exact matters to be considered,
    to convene a General Meeting of Shareholders and neither the Board of Management
    nor the Supervisory Board, which in this case have equal powers, have taken
    the necessary steps so that the General Meeting of shareholders could be
    held within six weeks after the request. For the application of this article,
    holders of depositary receipts issued for shares with cooperation of the
    company have the same rights as shareholders.

Without prejudice to the other provisions
    of article 47 of the Articles, the members of the Supervisory Board and the
    Board of Management and the persons entitled to attend shareholders meetings
    shall have the right to attend the General Meeting of Shareholders.

Every person entitled to attend shareholders'
    meetings and vote thereat shall have the right to attend the General Meeting
    of Shareholders, either in person or by proxy duly authorized in writing,
    to address the meeting, and to vote thereat: (a) provided that he has declared
    his intention to do so not later than on the day named in the convening notice,
    which day cannot be earlier than seven and not later than five clear days
    before the day of the meeting (not counting either the day that he declared
    his intention or the day of the meeting), at the venue specified in that
    notice; and (b) in the case of a holder of bearer shares, a usufructuary
    with the right to vote, or a pledgee with the right to vote, provided that
    he has deposited the document evidencing his right not later than on the
    day named in the convening notice, which day cannot be earlier than seven
    and not later than five clear days before the day of the meeting (not counting
    the day that the share certificates were deposited or the day of the meeting),
    at the venue specified in that notice, against a receipt. This receipt shall
    also serve as ticket of admission to the meeting.

Every person entitled to attend shareholders'
    meetings shall have the right to attend the General Meeting of Shareholders,
    either in person or by proxy duly authorized in writing, and to address the
    meeting. The provisions of the preceding paragraph apply mutatis mutandis.

The Board of Management may decide that those
    persons shall be considered as entitled to attend meetings or attend meetings
    and vote thereat that, at a record date then to be set, have these rights
    and had their names recorded in a register designated by the Board of Management
    for that purpose, regardless of who would have been entitled, at the time
    of the General Meeting of Shareholders, to attend the meeting, or attend
    the meeting and vote thereat, if a record date as contemplated in this paragraph
    had not been set. The convening notice for the meeting shall both state the
    record date and the manner in which the persons entitled to attend the meeting,
    or attend the meeting and vote thereat, may have their

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names registered and exercise their rights. These provisions shall apply notwithstanding
the provisions of the second and third
paragraphs of this article.

The person entitled to attend shareholders meetings who wishes to be represented
at the General Meeting of Shareholders by a proxy duly authorized in writing
shall present the proxy statement, or cause it to be presented, at the place
specified in the convening notice not later than on the date named therein.

Any disputes on the question whether a person entitled to attend shareholders meetings
or a proxy has furnished sufficient proof of his identity to be allowed to attend
the General Meeting of Shareholders and exercise the right to vote, and on all
other issues connected with the correct procedure at the meeting, shall be decided
by the chairman of that meeting. The chairman shall decide on admission to the
meeting of persons other than those entitled under article 47 of the Articles.

For the purpose of article 47 of the Articles, the Company has the right to go
by the account of the keepers of registers as referred to in this article or
in the convening notice or notices, and by the account of agencies or banks involved
in ascertaining who is entitled to attend the meeting or attend the meeting and
vote thereat.

General Meetings of Shareholders are presided over by the Chairman of the Supervisory
Board or, in his absence, by one of the Deputy Chairmen or, if all Deputy Chairmen
are absent, by one of the other members of the Supervisory Board. If no member
of the Supervisory Board is present, the meeting shall choose a chairman.

The annual General Meeting
  of Shareholders shall be held each year not later than June 30. The agenda for
  this meeting shall at least comprise the following items:(a) consideration of
  the written annual report of the Board of Management on the Company's business
  and the Boards conduct thereof;(b) adoption
  of the annual financial statements and–with due observance of article 43 of the Articles – the allocation of
  profit.

These items need not be included in the agenda if an extension has been granted
of the term for the preparation of the annual financial statements and the submission
of the annual report, or if a proposal for such an extension is part of the agenda.

Age-Limit Requirements

Any person aged 70 or more shall not be eligible for appointment to the Supervisory
Board. In accordance with a rotation schedule to be established by the Supervisory
Board, at the annual General Meeting of Shareholders at least one-fourth of the
total number of members shall step down, including any member of the Supervisory
Board who since the previous annual General Meeting of Shareholders has attained
the age of 70.

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

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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
      RightsUpon liquidation of the
      Company, the assets remaining after payment of all debts and of the liquidation
      costs will be distributed as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|-                                                                                                                                                                                
|-                                                                                                                                                                                
|-                                                                                                                                                                                
|-                                                                                                                                                                                
|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.

Amendment of the Articles
  of Association

On April 21, 2005, the
    General Meeting of Shareholders decided to amend the Articles of Association.
    A request has been made to the Dutch Ministry of Justice for the required
    certificate of no objection to the notarial deed of amendment to the Articles.
    After this certificate of no objection has been obtained, the civil

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notary will execute the
    deed of amendment of the Articles and the amended Articles will come into
    effect. At that point in time, the amended Articles will be furnished on
Form 6-K.

The amendments to the Articles are based on the introduction of
the Dutch Corporate Governance Code (the“Code”), on December 9, 2003 and the
Act that came into force on October 1, 2004, including changes to Book 2 of the
Dutch Civil Code with respect to companies limited by shares (naamloze vennootschappen).

The main elements of the amendment of the Articles are:

Approval of Important
  Resolutions of the Board of Management by the General Meeting of ShareholdersIn line with the Codeand the changes in the Dutch Civil Code mentioned above, the Articles will
  include a provision stating that resolutions of the Board of Management with
  regard to an important change in the identity or character of the Company or
  the enterprise shall be subject to the approval of the General Meeting of Shareholders

Nomination Procedure
  for the Board of Management and Supervisory BoardCurrently, the meeting of
  holders of priority shares has the right to make binding nominations for the
  appointment of members of the Board of Management and the Supervisory Board.
  The priority shares are held by the Akzo Nobel Foundation. The Board of the
  Akzo Nobel Foundation consists of the members of the Board of Management and
  the Supervisory Board. Due to a grandfathering provision of the legislator at
  the time, these nominations cannot be cancelled by the General Meeting of Shareholders.

According to the Codes recommendation (provision IV.1.1), the general meeting
of shareholders should be able to pass a resolution to cancel the binding nature
of a nomination for the appointment of the members of the Supervisory Board or
of the Board of Management. The Company subscribes to the Code's principle in
general and therefore additional provisions relating to the nomination procedures
are included in the amendment of the Articles. In the amendment of the Articles,
an additional nomination procedure will be introduced (see articles 25 and 32
of the proposal). The provisions entail that in normal circumstances the members
of the Board of Management and the Supervisory Board will be appointed on the
basis of a nonbinding nomination by the Supervisory Board. The Board of the Akzo
Nobel Foundation has confirmed its intention to use its binding nomination rights
only in case of exceptional circumstances, such as in the event of a (threatened)
hostile takeover.

Although a deviation from
    provision IV.1.1. of the Code, the Board of Management and the Supervisory
    Board believe these provisions will enhance the Company's corporate governance.
    In this context, it is noted that the Board of the Foundation will in future
    only consist of those Members of the Supervisory Board that are not at the
same time members of the Audit Committee.

Members of the Board
  of Management appointed for Four-Year PeriodsIn line with the Code, in
  the amendment of the Articles, members of the Board of Management will be proposed
  for a maximum period of four years, provided however that the term of office
  shall lapse in the fourth year after the appointment, at the end of the month
  in which the annual General Meeting of Shareholders is held. Reappointment is
  possible.

Adoption of Remuneration
  Policy by the General Meeting of ShareholdersIn line with the Code and
  the changes to the Dutch Civil Code mentioned above, the Articles will include
  that the General Meeting of Shareholders adopts the remuneration policy for
  the Board of Management,

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115

upon a proposal
  of the Supervisory Board. The remuneration of members of the Board of Management
  will, with due observance of this policy, be determined by the Supervisory Board.
  A proposal regarding the arrangements for the remuneration of the Board of Management
  in the form of shares or rights to acquire shares shall need the approval of
  the General Meeting of Shareholders.

*Discharge
  and indemnification of members of the Board of Management and Supervisory Board* In line with the Code it
  is stated in the Articles that the discharge of the members of the Board of
  Management and Supervisory Board with respect to the performance of their duties
  in the respective financial year will be put on the agenda of the General Meeting
  of Shareholders as separate items for the Board of Management and Supervisory
  Board, respectively.

It is common knowledge
  that especially in the United States, the exposure for the directors of companies
  for liability suits, forcing them to incur significant defense costs, has increased
  considerably. In light of the fact that Akzo Nobel is listed on NASDAQ in the
  United States, it is deemed reasonable to protect the directors of the Company
  from these exposures in a way similar to what is common practice in the United
  States. In line with international practices the amendment of the Articles includes
  a provision stating that the members of the Board of Management and the Supervisory
  Board will be indemnified for various costs and expenses, like the reasonable
  costs of conducting a defense against claims and damages. There shall be no
  entitlement to reimbursement if, among other things, the act or failure to act
  of the person concerned may be characterized as willful (opzettelijk),
  intentionally reckless (bewust roekeloos) or seriously culpable (ernstig
  verwijtbaar).

C. MATERIAL CONTRACTS

On October 20, 2003 the
  Company entered into a contract with Pfizer on asenapine. This contract was
  filed as Exhibit 4.a. to the Annual Report on Form 20-F 2003, which is incorporated
  by reference herein. The Company has not entered into other material contracts
  (other than those entered into in the ordinary course of business) in the past
  two years. For a description of significant acquisitions and divestments in
  2004, 2003 and 2002 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 TaxationThe 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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|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, dividends paid by the Company to a shareholder that is a
  resident of the United States (as defined in the 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
  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)                                                                                                        
|(b)                                                                                                        

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117

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 that actually
      or constructively owns 10 percent or more of the voting stock of Akzo Nobel,
      or       
|- | a person that holds
      shares or ADSs as part of a straddle or a hedging or conversion transaction.                   

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:
|-------------------------------------------------------------------------------------------
|-                                                                                          
|-                                                                                          
|-                                                                                          
|-                                                                                          
|                                                                                           

|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 taxable
  income that you must include in income when you, in the case of shares, or the
  Depositary, in the case of ADSs, receive the dividend, actually or constructively.
  If you are a noncorporate U.S. holder, dividends paid to you in taxable years
  beginning after December 31, 2002 and before January 1, 2009 that constitute
  qualified dividend income will be taxable to you at a maximum rate of 15 percent
  provided that you hold the shares or ADSs for more than 60 days during the 121-day
  period beginning 60 days before the ex-dividend date and meet other holding
  period requirements. Dividends

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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.

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
  GainsIf 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 that is recognized on or after May 6, 2003
  and before January 1, 2009, is generally taxed at a maximum rate of 15 percent
  where the holder has a holding period greater than one year. Capital losses
  may generally offset only capital gains. 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.

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119

|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.

|Item
      11. | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------------- | ----------------------------------------------------------------

Foreign Currency Exchange
  Risk ManagementAkzo 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.

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At December 31, 2004, the
  following contracts to buy and sell currencies were outstanding, all having
  maturities within one year:

|                    |                     |  |                      |  |                      |   |                       |  
|------------------- | ------------------- |  | -------------------- |  | -------------------- | - | --------------------- | -
|Currency            | Buy
      contracts |  | Sell
      contracts |  | Mark
      to market |   | Mark
      to market  |  
|                    |                     |  |                      |  | value                |   | value                 |  
|Millions of euros   |                     |  |                      |  | buy
      contracts* |   | sell
      contracts* |  
|                    |                     |  |                      |  |                      |   |                       |  
|U.S. dollar         | 272                 |  | 391                  |  | (27                  | ) | 53                    |  
|Canadian dollar     | 169                 |  | 89                   |  | (3                   | ) | (8                    | )
|Pound sterling      | 307                 |  | 5                    |  | (6                   | ) |                      |  
|Swedish krona       | 152                 |  | 128                  |  | 1                    |   |                      |  
|Japanese yen        | 2                   |  | 122                  |  |                     |   | 1                     |  
|Swiss franc         | 53                  |  | 31                   |  |                     |   |                      |  
|Australian dollar   | 15                  |  | 32                   |  |                     |   |                      |  
|Norwegian krone     | 60                  |  | 19                   |  |                     |   |                      |  
|Danish krone        | 5                   |  | 5                    |  |                     |   |                      |  
|Singapore dollar    | 8                   |  | 20                   |  |                     |   |                      |  
|Mexican pesos       | 1                   |  | 21                   |  |                     |   |                      |  
|Other               | 25                  |  | 38                   |  | (2                   | ) | 3                     |  
|                    |                     |  |                      |  |                      |   |                       |  
|Total               | 1,069               |  | 901                  |  | (37                  | ) | 49                    |  
|                    |                     |  |                      |  |                      |   |                       |  
|                    |                     |  |                      |  |                      |   |                       |  
|* 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.

|                                            |                             
|------------------------------------------- | ----------------------------
|Financial Instruments
      (Balance Sheet) |                             
|                                            |                             
|                                            | Expected
      maturity date
|Millions of euros                           | 2005                        
|                                            |                             
|Long-term borrowings
      (USD)            |                             
|Average interest rate
      %               |                             
|                                            |                             

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 ManagementIn 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 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.

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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, the table presents notional amounts and weighted average
  interest rates by expected maturity dates.

|                                                                                                           |                              |  |      |  |      |  |       | 
|---------------------------------------------------------------------------------------------------------- | ---------------------------- |  | ---- |  | ---- |  | ----- | 
|                                                                                                           | Expected
      maturity date |  |      |  |      |  |       | 
|Millions
      of euros                                                                                    | 2005                         |  | 2006 |  | 2007 |  | 2008  | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Liabilities                                                                                                |                              |  |      |  |      |  |       | 
|Long term borrowings                                                                                       |                              |  |      |  |      |  |       | 
|Fixed
      Rate (EUR)                                                                                     |                              |  |      |  |      |  |       | 
|Bond
      loan 95/05                                                                                      | 227                          |  |      |  |      |  |       | 
|Average
      interest rate %                                                                              | 7.00                         |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Bond
      loan 98/08                                                                                      |                              |  |      |  |      |  | 512   | 
|Average
      interest rate %                                                                              |                              |  |      |  |      |  | 5.38  | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Bond
      loan 02/09                                                                                      |                              |  |      |  |      |  |       | 
|Average
      interest rate %                                                                              |                              |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Bond
      loan 03/11                                                                                      |                              |  |      |  |      |  |       | 
|Average
      interest rate %                                                                              |                              |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Fixed
      Rate (USD)                                                                                     |                              |  |      |  |      |  |       | 
|Bond
      loan 07                                                                                         |                              |  |      |  | 75   |  |       | 
|Average
      interest rate %                                                                              |                              |  |      |  | 6.44 |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Bond
      loan 09                                                                                         |                              |  |      |  |      |  |       | 
|Average
      interest rate %                                                                              |                              |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Bond
      loan 12                                                                                         |                              |  |      |  |      |  |       | 
|Average
      interest rate %                                                                              |                              |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Interest rate derivatives                                                                                  |                              |  |      |  |      |  |       | 
|Interest rate swaps                                                                                        |                              |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Fixed
      to variable (EUR)                                                                              | 145                          |  |      |  |      |  |       | 
|Average
      pay rate                                                                                     |                              |  |      |  |      |  |       | 
|Average
      receive rate %                                                                               | 6.325                        |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Variable
      to fixed (EUR)                                                                              | 145                          |  |      |  |      |  |       | 
|Average
      pay rate                                                                                     |                              |  |      |  |      |  |       | 
|Average
      receive rate %                                                                               | 5.30                         |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Fixed
      to variable (EUR)                                                                              |                              |  |      |  |      |  |       | 
|Average
      pay rate                                                                                     |                              |  |      |  |      |  |       | 
|Average
      receive rate %                                                                               |                              |  |      |  |      |  |       | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Interest rate currency
      swap                                                                          |                              |  |      |  |      |  |       | 
|Fixed
      (EUR) to Variable (USD)                                                                        |                              |  |      |  |      |  | 500   | 
|Average
      pay rate                                                                                     |                              |  |      |  |      |  |       | 
|Average
      receive rate %                                                                               |                              |  |      |  |      |  | 5.625 | 
|                                                                                                           |                              |  |      |  |      |  |       | 
|Forward rate agreements                                                                                    |                              |  |      |  |      |  |       | 
|Fixed
      interest in a range from 2.18% to 2.46% for a volume of USD 300 million
      (maturity 2005). |                              |  |      |  |     

Commodities

In order to hedge the price
  risk of natural gas, the Company has entered into swap contracts for the underlying
  fuels, with an average volume of 32,000 ton coal, 30,000 barrels of crude oil
  and 12,000 ton heavy fuel oil for the period January through October 2005, whereby
  the price is fixed. The Company also

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concluded futures contracts
  for the purchase of 1.0 million m3 of gas, reasonably spread over the period
  January through June 2005.

The fair value of such contracts
  is as follows:

|                               |                  | 
|------------------------------ | ---------------- | 
|Millions of euros;
      asset | Fair
      value | 
|                               |                  | 
|Petroleum swaps                |                 | 
|Gas futures                    |                 | 
|                               |                  | 

Item
  12.DESCRIPTION
  OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

Item
  13.DEFAULTS,
  DIVIDEND ARREAGES AND DELINQUENCIES

None.

Item
  14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

Item
  15.DISCLOSURE
  CONTROLS AND PROCEDURES

Akzo Nobel has a Disclosure
  Committee which monitors procedures established by the Company and advises the
  Board of Management to ensure adequate and timely disclosure of financial and
  nonfinancial information.

Under the supervision and
  with the participation of the Companys management, including the Companys
  Chief Executive Officer and Chief Financial Officer, the Company has evaluated
  the effectiveness of the design and operation of its disclosure controls and
  procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
  and Exchange Act of 1934) as of the end of the period covered by this Annual
  Report. Based on that evaluation, the Chief Executive Officer and Chief Financial
  Officer have concluded that these disclosure controls and procedures are effective
  at the reasonable assurance level.

In designing and evaluating
  our disclosure controls and procedures, our management, including the Chief
  Executive Officer and Chief Financial Officer, recognized that any controls
  and procedures, no matter how well designed and operated, can provide only reasonable
  assurance of achieving the desired control objectives, and the Board of Management
  necessarily was required to apply its judgment in evaluating the cost-benefit
  relationship of possible controls and procedures. Because of the inherent limitations
  in all control systems, no evaluation of controls can provide absolute assurance
  that all control issues and instances of fraud, if any, within the Company have
  been detected.

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There were no significant
  changes in the Companys internal controls over financial reporting during
  the period covered by this Annual Report that have materially affected, or are
  reasonably likely to materially affect, the Companys internal controls
  over financial reporting.

Item
  16.A.AUDIT
  COMMITTEE FINANCIAL EXPERT

The Supervisory Board has
  determined, that its member Dr. Lars Thunell is an Audit Committee Financial
  Expert as defined in Item 16A of Form 20-F.

Item
  16.B.CODE
  OF ETHICS

The Company recognizes that
  its businesses have responsibilities within the communities in which they operate.
  The Company has a Financial Code of Ethics which applies to the Chief Executive
  Officer, the Chief Financial Officer, the Senior Vice President Finance, the
  Director Corporate Control, the Director Corporate Tax, the Director Corporate
  Internal Audit, the Group Controllers, the Business Unit Controllers, the country
  controllers, and certain other senior financial officers specifically designated
  for the purpose.

The Company has published
  its Financial Code of Ethics on its website (www.akzonobel.com).

No changes have been made
  to the Financial Code of Ethics since its adoption and no waivers have been
  granted therefrom to the officers mentioned above.

Akzo Nobel is subject to the
  Corporate Governance Code 2004 of The Netherlands and the Corporate Governance
  Rules of NASDAQ, both of which require that the Company has a code of conduct.
  The Companys Business Principles, which apply to all employees including
  the members of the Board of Management, complies with the Corporate Governance
  Code of the Netherlands and serves as the code of conduct for the purpose of
  the Corporate Governance Rules of NASDAQ. The Company has established several
  procedures to arrange for dissemination of the Business Principles and training
  company-wide. It also has established procedures to monitor compliance with
  the Business Principles in general and certain of its provisions in particular
  and to provide for enforcement of the Business Principles.

Item
  16.C.PRINCIPAL
  ACCOUNTANT FEE AND SERVICES

The external auditor is appointed
  by the General Meeting of Shareholders on the proposal of the Supervisory Board.
  The appointment is for an indefinite period of time with a review every three
  years by the Audit Committee. The Audit Committee advises the Supervisory Board,
  which will communicate the results of this assessment to the General Meeting
  of Shareholders. The lead auditor in charge of the Akzo Nobel account will be
  changed every five years.

The Audit Committee has been
  granted direct responsibility for compensation and oversight of the auditors
  and the services they provide to the Company. The Committee formally evaluates
  the independence of the external auditor and preapproves the fees for all audit,
  audit-related, and permitted nonaudit services rendered by the external auditor.
  The external auditors are prohibited from providing certain non-audit services
  to the Company. In order to anchor this in the procedures of the Company, the
  Audit Committee adopted the Akzo Nobel Auditors Independence Policy
  and the related Akzo Nobel Audit Committee Preapproval Policy on Audit,
  Audit-Related, and Nonaudit Services. The Audit Committee has adopted
  a policy on auditor independence which governs the external auditors

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124

appointment, rotation, responsibilities,
  services rendered, compensation, and oversight. These policies can be found
  on the Companys website (www.akzonobel.com).

The aggregate fees billed
  by KPMG for professional services rendered for the years 2004 and 2003 were
  as follows:

|                   |      |  |      | 
|------------------ | ---- |  | ---- | 
|Millions of euros  | 2004 |  | 2003 | 
|                   |      |  |      | 
|Audit fees         | 7.8  |  | 7.8  | 
|Audit-related fees | 2.8  |  | 3.0  | 
|Tax fees           | 2.5  |  | 3.2  | 
|Other fees         | 0.5  |  | 0.1  | 
|                   |      |  |      | 
|Total              | 13.6 |  | 14.1 | 
|                   |      |  |      | 

Audit fees consist of fees
  for the examination and audit of both the consolidated financial statements
  and statutory financial statements of certain subsidiaries of Akzo Nobel N.V.
  Audit-related fees primarily consist of fees in connection with audits of acquisitions
  and divestments and accounting consultations. Tax fees mainly relate to tax
  compliance and expatriate tax services. Other fees mainly comprise IT review
  and other permitted consultancy services.

All services rendered by
  KPMG have been approved by the Audit Committee.

Item
  16E.PURCHASES
  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During 2004, no Akzo Nobel
  N.V. common shares were repurchased.

PART III

Item
  17.FINANCIAL
  STATEMENTS

Akzo Nobel has responded
  to Item 18.

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125

|                                         |                                                                                                                |    
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---
|                                         |                                                                                                                |    
|Item
      18.FINANCIAL
      STATEMENTS |                                                                                                                |    
|                                         |                                                                                                                |    
|                                         |                                                                                                                |    
|                                         |                                                                                                                |    
|INDEX
      TO FINANCIAL STATEMENTS      | Page                                                                                                           |    
|                                         |                                                                                                                |    
|                                         |                                                                                                                |    
|Report
      of independent auditors     | 126                                                                                                            |    
|                                         |                                                                                                                |    
|Financial
      Statements:              |                                                                                                                |    
|-                                        | Summary
      of significant accounting policies used in preparing the consolidated financial
      statements | 127
|-                                        | Consolidated
      balance sheets at December 31, 2004 and 2003                                                | 132
|-                                        | Consolidated
      statements of income for the years ended December 31, 2004, 2003 and 2002                   | 133
|-                                        | Consolidated
      statements of cash flows for the years ended December 31, 2004, 2003, and
      2002        | 134
|-                                        | Notes
      to the consolidated financial statements                                                           | 135
|                                         |                                                                                                                |    
|                                         |                                                                                                                |    
|FINANCIAL
      STATEMENT SCHEDULE1      |                                                                                                                |    
|                                         |                                                                                                                |    
|II                                       | Valuation
      and qualifying accounts                                                                        | 181



|1 | Schedules other than
      the one listed under this heading are omitted for the reason that they are
      not required or are not applicable.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------

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126

REPORT OF INDEPENDENT REGISTERED
  PUBLIC ACCOUNTING FIRM

To the Board of Management
  of Akzo Nobel N.V. and Supervisory Board:

We have audited the consolidated
  financial statements of Akzo Nobel N.V. and subsidiaries as listed in the accompanying
  index. In connection with our audits of the consolidated financial statements,
  we have also audited the financial statement schedule as listed in the accompanying
  index. These consolidated financial statements and the financial statement schedule
  are the responsibility of the Company's management. Our responsibility is to
  express an opinion on these consolidated financial statements and the financial
  statement schedule based on our audits.

We conducted our audits in
  accordance with the standards of the Public Company Accounting Oversight Board
  (United States of America). Those standards require that we plan and perform
  the audit to obtain reasonable assurance about whether the financial statements
  are free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements.
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.

In our opinion, the consolidated
  financial statements referred to above present fairly, in all material respects,
  the financial position of Akzo Nobel N.V. and subsidiaries at December 31, 2004
  and 2003, and the results of their operations and their cash flows for each
  of the years in the three-year period ended December 31, 2004, in conformity
  with generally accepted accounting principles in the Netherlands. Also in our
  opinion, the related financial statement schedule, when considered in relation
  to the basic consolidated financial statements taken as a whole, presents fairly,
  in all material respects, the information set forth therein.

Accounting principles generally
  accepted in the Netherlands vary in certain significant respects from accounting
  principles generally accepted in the United States of America. Information relating
  to the nature and effect of such differences is presented in Note 22 to the
  consolidated financial statements.





|Arnhem, the Netherlands |                      
|----------------------- | ---------------------
|February 3, 2005        | KPMG Accountants N.V.

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127

SUMMARY OF SIGNIFICANT
  ACCOUNTING POLICIES USED IN PREPARING THE CONSOLIDATED FINANCIAL STATEMENTS

General

The consolidated financial
  statements of Akzo Nobel N.V. (Akzo Nobel) and subsidiaries have
  been prepared in conformity with generally accepted accounting principles in
  the Netherlands (NL GAAP), which differ in certain significant respects
  from accounting principles generally accepted in the United States of America
  (US GAAP). See Note 22 for a description of the differences between
  NL GAAP and US GAAP affecting Akzo Nobel's net income and shareholders' equity.

The preparation of financial
  statements in conformity with generally accepted accounting principles requires
  management to make estimates and assumptions that affect the reported amounts
  of assets and liabilities and disclosure of contingent assets and liabilities
  at the date of the financial statements, and the reported amounts of revenues
  and expenses during the reporting period. Actual results could differ from those
  estimates.

Consolidation

The consolidated financial
  statements include the accounts of Akzo Nobel N.V. and its subsidiaries. Subsidiaries
  are companies of which Akzo Nobel directly and/or indirectly has control. All
  of the assets, liabilities, and results of the consolidated companies are included.
  Minority interest in equity and earnings is shown separately. Transactions between
  consolidated companies are eliminated.

Valuation

The principles of valuation
  and determination of income used in the consolidated financial statements are
  based on historical costs.

Translation of Foreign
  Currencies

In the balance sheet, amounts
  in foreign currencies are translated into euros at year-end exchange rates.
  Foreign exchange differences are included in income. Results on currency hedging
  contracts are also recognized in income to offset the foreign exchange differences
  on the related hedged items. Exchange differences on anticipatory hedges of
  firm commitments regarding sales and purchases are deferred on the balance sheet
  until the hedged transactions have been reflected in the accounts. The capitalized
  or accrued amount is included in receivables or current liabilities.

Statements of income in
  foreign currencies are translated into euros at average exchange rates.

Foreign exchange differences
  resulting from translation into euros of shareholders equities and of
  intercompany loans of a permanent nature with respect to subsidiaries outside
  the euro region are directly added to, or deducted from, equity.

Before being consolidated,
  the financial statements of subsidiaries established in hyperinflationary countries
  are adjusted for the effects of changing prices.

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Principles of Valuation
  of Assets and Liabilities

Intangible AssetsPurchased
  goodwill is capitalized and amortized on a straight-line basis over the estimated
  useful life. In the majority of cases, economic life exceeds the rebuttable
  legal maximum of 5 years because benefits are expected to be generated over
  this longer period. Goodwill is determined as the difference between the fair
  value of the consideration paid for new interests and the fair value of the
  purchased net assets at the date of acquisition.

Development costs are capitalized
  if it is probable that sufficient future economic benefits will be generated
  by the intangible asset arising from development, and amortized on a straight-line
  basis over the estimated useful life, which in the majority of cases is 5 years.

Other intangible assets,
  such as licenses, know-how, and intellectual property rights, are capitalized
  and amortized on a straight-line basis over their estimated useful life, which
  in the majority of cases is 10 to 15 years.

Property, Plant and
  EquipmentProperty,
  plant and equipment are valued at cost less accumulated depreciation. Cost includes
  the financing charges of capital investment projects under construction. Capital
  investment grants are deducted from property, plant and equipment.

Depreciation is computed
  by the straight-line method based on estimated useful life, which in the majority
  of cases is 10 years for plant equipment and machinery, and which ranges from
  20 to 30 years for buildings.

Impairment of Intangible
  Assets and Property, Plant and EquipmentIntangible
  assets and property, plant and equipment are reviewed for impairment whenever
  events or changes in circumstances indicate that the carrying amount of an asset
  may not be recoverable. Recoverability of an asset is measured by a comparison
  of the carrying amount of the asset with discounted value of the future net
  cash flows expected to be generated by the asset, either directly or indirectly.
  If the carrying amount of the asset exceeds this discounted cash flow value,
  an impairment charge for this excess is recognized.

Financial Noncurrent
  AssetsInterests
  in companies where Akzo Nobel can exercise significant influence are treated
  as nonconsolidated companies and are stated at the amount of Akzo Nobels
  share in shareholders equity. The calculation of shareholders equity
  is based as much as possible on the Akzo Nobel principles of valuation.

Loans to nonconsolidated
  companies are carried at face value less such provisions as are considered necessary.

For the valuation of deferred
  tax assets reference is made to Deferred Taxes.

Other financial noncurrent
  assets are stated at face value, at cost, or at lower market value. For pension
  prepayments reference is made to Pensions and Other Postretirement Benefits.

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InventoriesInventories
  are stated at the lower of cost or net realizable value. Cost of inventories
  comprise all costs of manufacturing purchase, costs of conversion and other
  costs incurred in bringing the inventories to the present location and condition.
  The costs of conversion of inventories include direct labor and fixed and variable
  production overheads and takes into account the stage of completion. The costs
  of inventories are determined using the first-in first-out (FIFO) method. Provisions
  are made for obsolescence.

ReceivablesReceivables
  are stated at face amounts less such provisions as are considered necessary.
  Management decides upon such allowance after an assessment of the creditworthiness
  based on external and internal sources of information and the specific circumstances
  for the debtor. This assessment also takes into account certain somewhat more
  general circumstances such as serious adverse economic conditions in a specific
  country or region.

Cash and Cash EquivalentsCash and cash
  equivalents are carried at face value, with the exception of marketable private
  borrowings and marketable securities, which are valued at the lower of cost
  or market value.

Long-term LiabilitiesProvisions
  are recorded when it is probable that a liability has materialized, and the
  amount involved is reasonably estimable. Provisions are stated at face value,
  except for certain long-term provisions, which have been discounted against
  present long-term interest rates.

Pensions and Other
  Postretirement BenefitsThe Company accounts
  for the costs of pension plans and postretirement benefits other than pensions
  in accordance with U.S. accounting standards SFAS 87 and SFAS 106, respectively.

Most of the Companys
  defined-benefit pension plans are funded with plan assets that have been segregated
  in a trust or foundation. For plans, which are not separately funded, the Company
  recognizes a provision for such amounts. Valuations of both funded and unfunded
  plans are carried out by independent actuaries. Pension costs primarily represent
  the increase in the actuarial present value of the obligation for projected
  pension benefits based on employee service during the year and the interest
  on this obligation in respect of employee service in previous years, net of
  the expected return on plan assets. In the event, however, that at any date
  the accumulated benefit obligation, calculated as the present value of the benefits
  attributed to employee service rendered prior to that date and based on current
  and past compensation levels, would be higher than the market value of the plan
  assets and/or the existing level of the pension provision, the difference is,
  pursuant to SFAS 87, added to provisions by means of recognition of an intangible
  asset for prior service costs with the balance, net of taxes, being charged
  to shareholders equity.

In certain countries the
  Company also provides postretirement benefits other than pensions to its employees.
  These plans are generally not funded. Valuations of the obligations under these
  plans are carried out by independent actuaries. The costs relating to such plans
  primarily consist of the present value of the benefits attributed on an equal
  basis to each year of service and the interest on this obligation in respect
  of employee service in previous years.

Deferred TaxesDeferred tax
  assets and liabilities are based on timing differences between the valuation
  of assets and liabilities for accounting purposes and the valuation for tax
  purposes. Measurement of deferred tax assets

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130

and liabilities are based
  on timing differences between the valuation of assets and liabilities for accounting
  purposes and the valuation for tax purposes. Measurement of deferred tax assets
  and liabilities is based upon the enacted tax rates expected to apply to taxable
  income in the years in which those timing differences are expected to be reversed.
  Deferred tax assets, including assets arising from losses carried forward, are
  recognized if it is more likely than not that the asset will be realized. Nonrefundable
  dividend taxes are taken into account in the determination of provisions for
  deferred taxes to the extent of earnings expected to be distributed by affiliated
  companies.

Stock-Based Compensation The costs for the performance
  share plan for the Board of Management and the Employee Share Plan, whereby
  Akzo Nobel N.V. common shares are conditionally granted to Board members and
  employees, are expensed over the vesting period, effective for the rights granted
  from 2002 onwards.

Long-Term Borrowings
  and Short-Term Debt Long-term borrowings and short-term
  debt are stated at face value.

Principles of Determination
  of Income

Revenue Recognition The Company recognizes revenue
  when persuasive evidence of an arrangement exists, delivery has occurred, the
  sales price is fixed or determinable, and collectibility is reasonably assured.
  For most of the Companys products, these criteria are generally met at
  the time the product is shipped and delivered to the customers and, depending
  on the delivery conditions, title and risk have passed to the customer and acceptance
  of the product, when contractually required, has been obtained, or, in cases
  where such acceptance is not required, when management has established that
  all aforementioned conditions for revenue recognition have been met and no further
  post-shipment obligations exist. Examples of the abovementioned delivery conditions
  are Free on Board point of delivery and Costs Insurance Paid
  point of delivery, where the point of delivery may be the shipping warehouse
  or any other point of destination as agreed in the contract with the customer.

Revenues are recorded net
  of sales taxes, customer discounts, rebates and similar charges. For products
  for which a right of return exists during a defined period, revenue recognition
  is determined based on the historical pattern of actual returns. Return policies
  are typically in conformity with customary return arrangements in local markets.

Service revenue is recognized
  as services are rendered.

Provision for estimated contract
  losses, if any, is made as soon as such losses are foreseen.

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Other Principles Observed
  in Preparation of Statement of Income The determination of income
  is closely associated with the valuation of assets and liabilities. In addition,
  the following principles are observed in the preparation of the statement of
  income:

|• | Cost of sales
      comprises the manufacturing costs of the goods and services sold and delivered,
      and any inventory write-downs to lower net realizable value. Manufacturing
      costs include such items as:                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                    
|• | Research
      costs and preparation and start-up expenses are charged to income as incurred.                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                    
|• | Royalty income
      is recognized on an accrual basis under Other Results.                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                    
|• | Restructuring
      and impairment charges, significant results on divestments, and costs of
      major law suits and antitrust cases are disclosed separately to enhance
      the insight into the underlying result for the period. This lay-out of the
      statement of income better reflects the underlying trends in the results
      of the activities.
|  |                                                                                                                                                                                                                                                                                                                                                                    
|• | Interest
      on interest swaps and forward rate agreements is included in the statement
      of income under Financing Charges.                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                    
|• | Taxes on
      income comprise both current and deferred taxes, including effects of changes
      in tax rates.                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                    
|• | Income from
      nonconsolidated companies consists of Akzo Nobels equity in earnings
      of these companies and interest on loans granted to them, with due allowance
      being made for taxes relating to these items.                                                                                                                                     

Earnings per Share

Earnings per common share
  are calculated by dividing net income by the weighted average number of common
  shares outstanding during the year, which are as follows:

|                                            |             |  |             |  |             | 
|------------------------------------------- | ----------- |  | ----------- |  | ----------- | 
|                                            | 2004        |  | 2003        |  | 2002        | 
|                                            |             |  |             |  |             | 
|Shares for basic earnings
      per share   | 285,745,587 |  | 285,691,957 |  | 285,827,092 | 
|Effect of dilutive securities               | 660,310     |  | 721,016     |  | 504,113     | 
|                                            |             |  |             |  |             | 
|Shares for diluted earnings
      per share | 286,405,897 |  | 286,412,973 |  | 286,331,205 | 
|                                            |             |  |             |  |             | 

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132

|AKZO
      NOBEL                                               
|---------------------------------------------------------------
|CONSOLIDATED
      BALANCE SHEETS                              
|                                                               
|Before allocation of
      profit                              
|Millions of euros,
      except per share amounts              
|                                                               
|Assets                                                         
|Current assets                                                 
|Cash
      and cash equivalents (Note 3)                       
|Receivables
      (Note 4)                                     
|Accounts
      receivable from nonconsolidated companies       
|Inventories
      (Note 5)                                     
|Prepaid
      expenses                                         
|                                                               
|Total current assets                                           
|                                                               
|Intangible assets (Note
      6)                               
|Property, plant and equipment,
      net (Note 7)              
|Nonconsolidated companies
      (Note 8)                       
|Deferred tax assets (Note
      20)                            
|Deferred tax assets for
      minimum pension liability        
|Other assets                                                   
|                                                               
|Total assets                                                   
|                                                               
|Liabilities and shareholders
      equity                     
|Short-term liabilities                                         
|Short-term
      borrowings (Note 9)                           
|Current
      liabilities (Note 10)                            
|Payables
      to nonconsolidated companies                    
|Current
      portion of long-term borrowings (Note 11)        
|                                                               
|Total short-term liabilities                                   
|                                                               
|Long-term borrowings
      (Note 11)                           
|Long-term liabilities
      (Note 12)                          
|Minority interest                                              
|Shareholders equity
      (Note 13)                           
|Priority
      shares:                                         
|48
      shares authorized and outstanding of EUR 400 per share
|Common
      shares:                                           
|Authorized
      600,000,000 shares of EUR 2 per share         
|Outstanding
      at December 31, 2004: 286,147,260 shares     
|Outstanding
      at December 31, 2003: 286,147,260 shares     
|Additional
      paid-in capital                               
|Foreign
      currency translation adjustments                 
|Other
      reserves                                           
|Undistributed
      profits                                    
|Statutory
      reserves                                       
|                                                               
|Capital
      and reserves                                     
|Minimum
      pension liability                                
|                                                               
|Total shareholders
      equity                               
|                                                               
|Total liabilities and
      shareholders equity               
|                                                               

See accounting policies and
  accompanying notes to consolidated financial statements.

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133

AKZO NOBEL
  CONSOLIDATED STATEMENTS OF INCOME

|                                                           |                                       
|---------------------------------------------------------- | --------------------------------------
|                                                           | for
      the years ended December 31,
|Millions of euros,
      except per share amounts          | 2004                                  
|                                                           |                                       
|Net sales                                                  | 12,688                                
|Cost of sales                                              | (6,851                                
|                                                           |                                       
|Gross margin                                               | 5,837                                 
|Selling
      expenses                                     | (3,255                                
|Research
      and                                         |                                       
|development
      expenses                                 | (823                                  
|General
      and                                          |                                       
|administrative
      expenses                              | (676                                  
|Restructuring
      and impairment                         |                                       
|charges
      (Note 16)                                    | (199                                  
|Antitrust
      and Remeron®court                          |                                       
|cases
      (Note 14)                                      | (199                                  
|Gains
      on divestments (Note 17)                       | 509                                   
|Other
      results, net (Note 18)                         | 106                                   
|                                                           |                                       
|Operating income                                           | 1,300                                 
|Interest
      income                                      | 19                                    
|Interest
      expense                                     | (142                                  
|                                                           |                                       
|Financing charges,                                         |                                       
|net
      (Note 19)                                        | (123                                  
|                                                           |                                       
|Operating income less
      net  financing charges         | 1,177                                 
|Income taxes (Note 20)                                     | (298                                  
|                                                           |                                       
|Earnings of consolidated companies
      less income taxes | 879                                   
|Earnings from nonconsolidated
      companies (Note 8)     | 12                                    
|                                                           |                                       
|Earnings before minority
      interest                    | 891                                   
|Minority interest                                          | (35                                   
|                                                           |                                       
|Net income                                                 | 856                                   
|                                                           |                                       
|Basic earnings per
      share                             | 3.00                                  
|                                                           |                                       
|Diluted earnings per
      share                           | 2.99                                  
|                                                           |                                       

See accounting policies and
  accompanying notes to consolidated financial statements.

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CONSOLIDATED
  STATEMENTS OF CASH FLOWS

|                                                         |                                       
|-------------------------------------------------------- | --------------------------------------
|                                                         | For
      the years ended December 31,
|Millions of euros                                        |                                       
|                                                         |                                       
|Cash flows from operating
      activities               |                                       
|Net income                                               |                                       
|Adjustments to reconcile
      net income to net cash    |                                       
|provided by operating
      activities:                  |                                       
|Minority
      interest                                  |                                       
|Depreciation
      and amortization, including write-    |                                       
|downs                                                    |                                       
|Book
      gains on divestments                          |                                       
|Nonconsolidated
      companies (net of dividends        |                                       
|received)                                                |                                       
|Changes
      in deferred tax, pensions and other        |                                       
|long-term
      liabilities                              |                                       
|Changes
      in working capital net of effect of        |                                       
|acquisitions
      and disposals:                        |                                       
|Receivables
      and prepaid expenses                   | (169                                  
|Inventories                                              | (23                                   
|Current
      liabilities exclusive of dividends,        |                                       
|borrowings
      and current portion of long-term        |                                       
|liabilities                                              | 348                                   
|                                                         |                                       
|                                                         |                                       
|Other                                                    |                                       
|                                                         |                                       
|Net cash provided
      by operating activities          |                                       
|                                                         |                                       
|Cash flows from investing
      activities               |                                       
|Purchase of intangible
      assets                      |                                       
|Expenditures for property,
      plant and equipment     |                                       
|Proceeds from sale of
      property, plant and          |                                       
|equipment                                                |                                       
|Investments in nonconsolidated
      companies and       |                                       
|repayment of loans by
      nonconsolidated companies    |                                       
|Acquisition of consolidated
      interests, net of cash |                                       
|acquired                                                 |                                       
|Proceeds from sale of
      interests                    |                                       
|Other                                                    |                                       
|                                                         |                                       
|Net cash generated
      by/used in investing activities |                                       
|                                                         |                                       
|Cash flows from financing
      activities               |                                       
|Cash dividends paid                                      |                                       
|Purchase of shares                                       |                                       
|Issuance of shares                                       |                                       
|Increase of long-term
      borrowings                   |                                       
|Repayment of long-term
      borrowings                  |                                       
|Short term borrowings
      exceeding three months:      |                                       
|Increase                                                 |                                       
|Repayment                                                |                                       
|Changes in other short-term
      borrowings             |                                       
|                                                         |                                       
|Net cash used for
      by financing activities          |                                       
|                                                         |                                       
|Effect of exchange rate
      changes on cash            |                                       
|                                                         |                                       
|Increase cash and cash
      equivalents                 |                                       
|                                                         |                                       
|Cash and cash equivalents:                               |                                       
|At
      beginning of year                               |                                       
|At
      end of year                                     |                                       
|                                                         |                                       

For supplemental disclosures
  see Note 23. 
  See accounting policies and accompanying notes to consolidated financial statements.

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135

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

(1)Industry
  Segment Information and Geographic Data

Akzo Nobel, headquartered
  in Arnhem, the Netherlands, is a market-driven and technology-based company,
  serving customers throughout the world with healthcare products, coatings, and
  chemicals.

(a)Industry
  Segment Information

The information presented
  below illustrates the relative importance of the individual groups.

|                                  |                
|--------------------------------- | ---------------
|                                  | Net
      sales
|Millions of euros                 | 2004           
|                                  |                
|                                  |                
|Pharma                            | 3,246          
|Coatings                          | 5,249          
|Chemicals                         | 4,305          
|Miscellaneous products,           |                
|intragroup
      deliveries, non- |                
|allocated
      items and         |                
|eliminations                      | (112           
|                                  |                
|Total                             | 12,688         
|                                  |                



|                              |                          
|----------------------------- | -------------------------
|                              | Identifiable
      assets
|Millions of euros             | 2004                     
|                              |                          
|Pharma                        | 2,999                    
|Coatings                      | 3,088                    
|Chemicals                     | 2,763                    
|Miscellaneous products,       |                          
|nonallocated,
      and       |                          
|eliminations,
      including |                          
|cash
      and cash           |                          
|equivalents                   | 3,237                    
|                              |                          
|                              | 12,087                   
|Nonconsolidated               |                          
|companies                     | 318                      
|                              |                          
|Total                         | 12,405                   
|                              |                          
|                              |                          

|1 | 2003 and
      2002 figures have been adjusted for a minor regrouping of activities between
      Coatings and Chemicals.
|- | -------------------------------------------------------------------------------------------------------------------------

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136

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

(b)Geographic
  Data

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

|                      |                                       
|--------------------- | --------------------------------------
|                      | Net sales     by region of destination
|Millions of euros     | 2004                                  
|                      |                                       
|The Netherlands       | 826                                   
|Germany               | 1,159                                 
|Sweden                | 506                                   
|United Kingdom        | 831                                   
|Other European        |                                       
|countries             | 4,012                                 
|USA and Canada        | 2,443                                 
|Latin America         | 726                                   
|Asia                  | 1,535                                 
|Other regions         | 650                                   
|Result on divestments |                                       
|                      |                                       
|Total                 | 12,688                                
|                      |                                       

|                                           |                    
|------------------------------------------ | -------------------
|                                           |                    
|                                           | Identifiable assets
|Millions of euros                          | 2004               
|                                           |                    
|The Netherlands                            | 2,799              
|Germany                                    | 823                
|Sweden                                     | 846                
|United Kingdom                             | 944                
|Other European countries                   | 2,098              
|USA and Canada                             | 1,636              
|Latin America                              | 454                
|Asia                                       | 835                
|Other regions                              | 284                
|                                           |                    
|                                           | 10,719             
|Eliminations and cash and cash equivalents | 1,368              
|Nonconsolidated companies                  | 318                
|                                           |                    
|Total                                      | 12,405             
|                                           |                    

(2) Acquisitions and Dispositions

In September 2003 Akzo Nobel announced its
    plan to sell Catalysts, Coating Resins, and Phosphorus Chemicals from its
    Chemicals portfolio. In 2004 these divestments were completed. Effective
    July 31, 2004, Catalysts and Phosphorus Chemicals were divested for EUR 616
    million and EUR 231 million, respectively, resulting in an after-tax gain
    of EUR 331 million and EUR 68 million, respectively. In December 2004, Coating
    Resins was divested for EUR 110 million, resulting in an after-tax gain of
    EUR 31 million.

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137

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

In July 2004, the German decorative paint wholesaler Timpe & Mock was acquired for an amount of EUR 35 million, including EUR 17 million goodwill.

In March 2003, the CIRS SpA antifouling and suspending agents business was acquired for EUR 36 million, including EUR 32 million goodwill.

Effective June 30, 2003, the Impregnated Papers business was divested for EUR 112 million, resulting in a gain of EUR 2 million after taxes.

In April 2002, the Awlgrip®marine and aerospace coatings business was acquired for EUR 27 million, including EUR 19 million goodwill.

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, of which EUR 15 million was paid in 2003. Goodwill was nil.

At the end of September 2002, the liquid pharmaceuticals manufacturing business Rosemont Pharmaceuticals Ltd, United Kingdom, was divested for EUR 102 million. The after-tax gain on this divestiture amounted to EUR 91 million.

Effective September 2002, Ferros powder coatings businesses in the Americas and Asia Pacific were acquired for EUR 70 million, including goodwill of EUR 45 million.

During 2004, 2003, and 2002, Akzo Nobel acquired other businesses in strategic markets and geographic areas. Also several other activities were divested in 2004 and 2003. None of these were significant to the consolidated financial statements.

All acquisitions were accounted for on the basis of the purchase accounting method.

(3)   Cash and Cash Equivalents

|                       |      
|---------------------- | -----
|Millions of euros      | 2004 
|                       |      
|Cash in banks          | 282  
|Short-term investments | 1,529
|                       |      
|Total                  | 1,811
|                       |      

Short-term investments almost entirely consist
    of cash loans, time deposits, marketable private borrowings, and marketable
securities immediately convertible into cash.

At December 31, 2004 and December 31, 2003,
    the amount of cash and cash equivalents was freely available.

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138

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

(4) Receivables

|                                                                                | 
|------------------------------------------------------------------------------- | 
|Millions of euros                                                               | 
|                                                                                | 
|Trade receivables                                                               | 
|Taxes                                                                           | 
|Other receivables                                                               | 
|                                                                                | 
|                                                                                | 
|Discounted drafts with
      recourse                                           | 
|                                                                                | 
|Total                                                                           | 
|                                                                                | 
|Allowances for doubtful
      accounts included as a deduction from receivables | 
|                                                                                | 

(5) Inventories

|                                                                       |      
|---------------------------------------------------------------------- | -----
|Millions of euros                                                      | 2004 
|                                                                       |      
|Raw materials and supplies                                             | 596  
|Work in process                                                        | 400  
|Finished products and goods for resale                                 | 977  
|Inventory prepayments                                                  | 5    
|                                                                       |      
|Total                                                                  | 1,978
|                                                                       |      
|Provisions for obsolescence deducted from inventory
       book values | 146  
|                                                                       |      

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139

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

(6) Intangible Assets

|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|------------------------------------------------- |  | ----- | - | -------- | - | --------------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------------------- | - | ----------------------- | -
|Millions of euros                                 |  | Total |   | Goodwill |   | Licenses,
      know
        -how, and
      intellectual
      property
        rights |   | Prior
        service
      costs
        for
      minimum
      pension
        liability |   | Development
      costs |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Balance at December
      31, 2001                |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Cost of acquisition                               |  | 623   |   | 218      |   | 371                                                                                     |   | 27                                                                                          |   | 7                       |  
|Accumulated amortization/impairment               |  | (115  | ) | (15      | ) | (99                                                                                     | ) |                                                                                             |   | (1                      | )
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Book value                                        |  | 508   |   | 203      |   | 272                                                                                     |   | 27                                                                                          |   | 6                       |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Changes in book value                             |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Acquisitions                                      |  | 127   |   | 127      |   |                                                                                         |   |                                                                                             |   |                         |  
|Divestitures                                      |  | (4    | ) | (4       | ) |                                                                                         |   |                                                                                             |   |                         |  
|Investments                                       |  | 19    |   |          |   | 19                                                                                      |   |                                                                                             |   |                        |  
|Amortization                                      |  | (59   | ) | (19      | ) | (39                                                                                     | ) |                                                                                             |   | (1                      | )
|Impairments                                       |  | (82   | ) | (8       | ) | (74                                                                                     | ) |                                                                                             |   |                         |  
|Change related to minimum
      pension liability |  | 146   |   |          |   |                                                                                         |   | 146                                                                                         |   |                         |  
|Change in exchange rates                          |  | (26   | ) | (21      | ) | (5                                                                                      | ) |                                                                                             |   |                         |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Total changes in 2002                             |  | 121   |   | 75       |   | (99                                                                                     | ) | 146                                                                                         |   | (1                      | )
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Balance at December
      31, 2002                |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Cost of acquisition                               |  | 758   |   | 314      |   | 264                                                                                     |   | 173                                                                                         |   | 7                       |  
|Accumulated amortization/impairment               |  | (129  | ) | (36      | ) | (91                                                                                     | ) |                                                                                             |   | (2                      | )
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Book value                                        |  | 629   |   | 278      |   | 173                                                                                     |   | 173                                                                                         |   | 5                       |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Changes in book value                             |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Acquisitions                                      |  | 61    |   | 61       |   |                                                                                         |   |                                                                                             |   |                         |  
|Divestitures                                      |  | (11   | ) | (6       | ) | (5                                                                                      | ) |                                                                                             |   |                         |  
|Investments                                       |  | 27    |   |          |   | 22                                                                                      |   |                                                                                             |   | 5                       |  
|Amortization                                      |  | (53   | ) | (25      | ) | (26                                                                                     | ) |                                                                                             |   | (2                      | )
|Impairments                                       |  | (23   | ) | (2       | ) | (21                                                                                     | ) |                                                                                             |   |                         |  
|Change related to minimum
      pension liability |  | (8    | ) |          |   |                                                                                         |   | (8                                                                                          | ) |                         |  
|Change in exchange rates                          |  | (32   | ) | (25      | ) | (7                                                                                      | ) |                                                                                             |   |                         |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Total changes in 2003                             |  | (39   | ) | 3        |   | (37                                                                                     | ) | (8                                                                                          | ) | 3                       |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Balance at December
      31, 2003                |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Cost of acquisition                               |  | 775   |   | 339      |   | 260                                                                                     |   | 165                                                                                         |   | 11                      |  
|Accumulated amortization/impairment               |  | (185  | ) | (58      | ) | (124                                                                                    | ) |                                                                                             |   | (3                      | )
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Book value                                        |  | 590   |   | 281      |   | 136                                                                                     |   | 165                                                                                         |   | 8                       |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Changes in book value                             |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Acquisitions                                      |  | 48    |   | 47       |   | 1                                                                                       |   |                                                                                             |   |                         |  
|Divestitures                                      |  | (5    | ) | (1       | ) | (4                                                                                      | ) |                                                                                             |   |                         |  
|Investments                                       |  | 28    |   |          |   | 25                                                                                      |   |                                                                                             |   | 3                       |  
|Amortization                                      |  | (53   | ) | (28      | ) | (22                                                                                     | ) |                                                                                             |   | (3                      | )
|Impairments                                       |  | (11   | ) | (11      | ) |                                                                                         |   |                                                                                             |   |                         |  
|Change related to minimum
      pension liability |  | (28   | ) |          |   |                                                                                         |   | (28                                                                                         | ) |                         |  
|Change in exchange rates                          |  | (8    | ) | (7       | ) | (1                                                                                      | ) |                                                                                             |   |                         |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Total changes in 2004                             |  | (29   | ) |         |   | (1                                                                                      | ) | (28                                                                                         | ) |                        |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Balance at December
      31, 2004                |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Cost of acquisition                               |  | 778   |   | 370      |   | 258                                                                                     |   | 137                                                                                         |   | 13                      |  
|Accumulated amortization/impairment               |  | (217  | ) | (89      | ) | (123                                                                                    | ) |                                                                                             |   | (5                      | )
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  
|Book value                                        |  | 561   |   | 281      |   | 135                                                                                     |   | 137                                                                                         |   | 8                       |  
|                                                  |  |       |   |          |   |                                                                                         |   |                                                                                             |   |                         |  



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140

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

For details on the impairment charges reference
    is made to Note 16.

(7)
      Property, Plant and Equipment

|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|----------------------------------- | ------ | - | -------------------------- | - | ----------------------------------------------------- | - | ----------------------- | - | ---------------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------- | -
|Millions
      of euros             | Total  |   | Buildings
        and land |   | Plant
        equipment
        and
        machinery |   | Other
        equipment |   | Construction
            in
        progress and
        prepayments
        on projects |   | Assets
            not
        used in the
        production
        process |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Balance at December 31, 2001        |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Cost of acquisition                 | 10,337 |   | 2,838                      |   | 6,002                                                 |   | 924                     |   | 535                                                                                      |   | 38                                                                            |  
|Accumulated depreciation/impairment | (5,769 | ) | (1,083                     | ) | (3,985                                                | ) | (675                    | ) |                                                                                          |   | (26                                                                           | )
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Book value                          | 4,568  |   | 1,755                      |   | 2,017                                                 |   | 249                     |   | 535                                                                                      |   | 12                                                                            |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Changes in book value               |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Acquisitions                        | 159    |   | 31                         |   | 123                                                   |   | 5                       |   |                                                                                         |   |                                                                              |  
|Divestitures                        | (9     | ) | (3                         | ) | (2                                                    | ) |                        |   | (4                                                                                       | ) |                                                                               |  
|Capital expenditures                | 689    |   | 260                        |   | 413                                                   |   | 91                      |   | (81                                                                                      | ) | 6                                                                             |  
|Disinvestments                      | (34    | ) | (17                        | ) | (11                                                   | ) | (4                      | ) |                                                                                         |   | (2                                                                            | )
|Depreciation                        | (622   | ) | (112                       | ) | (426                                                  | ) | (83                     | ) |                                                                                          |   | (1                                                                            | )
|Impairments                         | (28    | ) | (8                         | ) | (19                                                   | ) | (1                      | ) |                                                                                          |   |                                                                              |  
|Changes in exchange rates           | (321   | ) | (137                       | ) | (130                                                  | ) | (13                     | ) | (41                                                                                      | ) |                                                                              |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Total changes in 2002               | (166   | ) | 14                         |   | (52                                                   | ) | (5                      | ) | (126                                                                                     | ) | 3                                                                             |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Balance at December 31, 2002        |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Cost of acquisition                 | 10,315 |   | 2,864                      |   | 6,105                                                 |   | 906                     |   | 409                                                                                      |   | 31                                                                            |  
|Accumulated depreciation/impairment | (5,913 | ) | (1,095                     | ) | (4,140                                                | ) | (662                    | ) |                                                                                          |   | (16                                                                           | )
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Book value                          | 4,402  |   | 1,769                      |   | 1,965                                                 |   | 244                     |   | 409                                                                                      |   | 15                                                                            |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Changes in book value               |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Acquisitions                        | 36     |   | 18                         |   | 7                                                     |   | 1                       |   | 10                                                                                       |   |                                                                               |  
|Divestitures                        | (79    | ) | (27                        | ) | (49                                                   | ) | (2                      | ) | (1                                                                                       | ) |                                                                               |  
|Capital expenditures                | 581    |   | 130                        |   | 294                                                   |   | 82                      |   | 60                                                                                       |   | 15                                                                            |  
|Disinvestments                      | (52    | ) | (22                        | ) | (15                                                   | ) | (6                      | ) | (3                                                                                       | ) | (6                                                                            | )
|Depreciation                        | (599   | ) | (113                       | ) | (402                                                  | ) | (82                     | ) |                                                                                          |   | (2                                                                            | )
|Impairments                         | (115   | ) | (81                        | ) | (32                                                   | ) |                         |   |                                                                                          |   | (2                                                                            | )
|Changes in exchange rates           | (207   | ) | (68                        | ) | (103                                                  | ) | (6                      | ) | (29                                                                                      | ) | (1                                                                            | )
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Total changes in 2003               | (435   | ) | (163                       | ) | (300                                                  | ) | (13                     | ) | 37                                                                                       |   | 4                                                                             |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Balance at December 31, 2003        |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Cost of acquisition                 | 9,837  |   | 2,736                      |   | 5,692                                                 |   | 902                     |   | 446                                                                                      |   | 61                                                                            |  
|Accumulated depreciation/impairment | (5,870 | ) | (1,130                     | ) | (4,027                                                | ) | (671                    | ) |                                                                                          |   | (42                                                                           | )
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Book value                          | 3,967  |   | 1,606                      |   | 1,665                                                 |   | 231                     |   | 446                                                                                      |   | 19                                                                            |  
|                                    |        |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  

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141

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|----------------------------------- | --------- | - | -------------------------- | - | ----------------------------------------------------- | - | ----------------------- | - | ---------------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------- | -
|Millions
      of euros             | Total     |   | Buildings
        and land |   | Plant
        equipment
        and
        machinery |   | Other
        equipment |   | Construction
            in
        progress and
        prepayments
        on projects |   | Assets
            not
        used in the
        production
        process |  
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Balance at December 31, 2003        |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Cost of acquisition                 | 9,837     |   | 2,736                      |   | 5,692                                                 |   | 902                     |   | 446                                                                                      |   | 61                                                                            |  
|Accumulated depreciation/impairment | (5,870    | ) | (1,130                     | ) | (4,027                                                | ) | (671                    | ) |                                                                                          |   | (42                                                                           | )
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Book value                          | **3,967** |   | **1,606**                  |   | **1,665**                                             |   | **231**                 |   | **446**                                                                                  |   | **19**                                                                        |  
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Changes in book value               |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Acquisitions                        | 8         |   |                           |   | 4                                                     |   | 4                       |   |                                                                                          |   |                                                                               |  
|Divestitures                        | (301      | ) | (90                        | ) | (181                                                  | ) | (6                      | ) | (24                                                                                      | ) |                                                                              |  
|Capital expenditures                | 551       |   | 146                        |   | 362                                                   |   | 75                      |   | (34                                                                                      | ) | 2                                                                             |  
|Transfer between categories         |           |   | (51                        | ) | (3                                                    | ) | (2                      | ) | (2                                                                                       | ) | 58                                                                            |  
|Disinvestments                      | (32       | ) | (7                         | ) | (17                                                   | ) | (3                      | ) | (1                                                                                       | ) | (4                                                                            | )
|Depreciation                        | (540      | ) | (107                       | ) | (354                                                  | ) | (78                     | ) |                                                                                          |   | (1                                                                            | )
|Impairments                         | (63       | ) | (4                         | ) | (20                                                   | ) | (14                     | ) |                                                                                          |   | (25                                                                           | )
|Changes in exchange rates           | (55       | ) | (26                        | ) | (23                                                   | ) | (3                      | ) | (3                                                                                       | ) |                                                                               |  
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Total changes in 2004               | (432      | ) | (139                       | ) | (232                                                  | ) | (27                     | ) | (64                                                                                      | ) | 30                                                                            |  
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Balance at December 31, 2004        |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Cost of acquisition                 | 9,141     |   | 2,576                      |   | 5,186                                                 |   | 830                     |   | 382                                                                                      |   | 167                                                                           |  
|Accumulated depreciation/impairment | (5,606    | ) | (1,109                     | ) | (3,753)                                               |   | (626)                   |   |                                                                                          |   | (118                                                                          | )
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  
|Book value                          | 3,535     |   | 1,467                      |   | 1,433                                                 |   | 204                     |   | 382                                                                                      |   | 49                                                                            |  
|                                    |           |   |                            |   |                                                       |   |                         |   |                                                                                          |   |                                                                               |  

The total book value of land at December 31,
    2004 was EUR 234 million (at December 31, 2003: EUR 273 million).

The book value of property,
  plant and equipment financed by installment buying and leasing and not legally
  owned by the Company was EUR 44 million at December 31, 2004 (at December
  31, 2003: EUR 104 million).

For details on the impairment charges reference
    is made to Note 16.

(8) Nonconsolidated Companies

|                                               |      |  |      | 
|---------------------------------------------- | ---- |  | ---- | 
|                                               |      |  |      | 
|Millions of euros                              | 2004 |  | 2003 | 
|                                               |      |  |      | 
|Investments in nonconsolidated
      companies | 301  |  | 345  | 
|Loans to nonconsolidated
      companies       | 17   |  | 8    | 
|                                               |      |  |      | 
|Total                                          | 318  |  | 353  | 
|                                               |      |  |      | 

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142

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

Dividends received from
  nonconsolidated companies in 2004, 2003 and 2002 amounted to EUR 123 million,
  EUR 17 million and EUR 82 million, respectively.

Earnings from nonconsolidated
  companies in 2004 include a tax charge of EUR 3 million, in 2003 a tax credit
  of EUR 4 million, and in 2002 a tax credit of EUR 1 million.

At December 31, 2004, consolidated
  retained earnings included EUR 132 million (2003: EUR 233 million) of undistributed
  earnings from Akzo Nobel's investments in nonconsolidated companies. Accounts
  receivable from and payable to nonconsolidated companies are separately presented
  in the Consolidated Balance Sheet.

The most important nonconsolidated
  companies are the 50-percent interest in Flexsys, the remaining 20% interest
  in the former Fibers activities, and the 30-percent interest in Methanor.

Summarized information
  of nonconsolidated companies on a 100-percent basis follows:

|                                     |       |  |       | 
|------------------------------------ | ----- |  | ----- | 
|Millions of euros                    | 2004  |  | 2003  | 
|                                     |       |  |       | 
|Current assets                       | 797   |  | 1,265 | 
|Noncurrent assets                    | 982   |  | 1,007 | 
|                                     |       |  |       | 
|Total assets                         | 1,779 |  | 2,272 | 
|                                     |       |  |       | 
|Current liabilities                  | 435   |  | 604   | 
|Noncurrent liabilities               | 600   |  | 754   | 
|Shareholders equity                 | 744   |  | 914   | 
|                                     |       |  |       | 
|Total liabilities and
        equity | 1,779 |  | 2,272 | 
|                                     |       |  |       | 
|                                     |       |  |       | 



|                    |       |  |       |   |       | 
|------------------- | ----- |  | ----- | - | ----- | 
|Millions of euros   | 2004  |  | 2003  |   | 2002  | 
|                    |       |  |       |   |       | 
|Net sales           | 2,653 |  | 3,018 |   | 3,283 | 
|Income before tax   | 248   |  | 16    |   | 34    | 
|Net income / (loss) | 214   |  | (10   | ) | 31    | 
|                    |       |  |       |   |       | 

The increase of the 2004
    statement of income figures predominantly is caused by higher earnings for
    the remaining 20-percent stake in the former Fibers activities, Flexsys,
    and Dyo Sadolin, partially offset by the divestment of the Catalysts joint
    ventures. The lower 2003 statement of income figures predominantly relate
    to lower earnings for the remaining 20-percent stake in the former Fibers
    activities and Flexsys.

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.
  Terms of these transactions were generally comparable to transactions with third
  parties.

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143

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

|(9) | Short-term Borrowings
|--- | ---------------------
|    |                      

|                                                  |                              |  |                                 | 
|------------------------------------------------- | ---------------------------- |  | ------------------------------- | 
|                                                  | Balance
      at end of year |  | Weighted
      average interest | 
|                                                  | in
      millions of euros   |  | rate
      at end of year       | 
|                                                  |                              |  |                                 | 
|Year ended December
      31, 2002                |                              |  |                                 | 
|Banks                                             | 517                          |  | 6%                              | 
|Commercial paper                                  | 396                          |  | 3%                              | 
|Borrowings from nonconsolidated
        companies | 66                           |  | 5%                              | 
|                                                  |                              |  |                                 | 
|Year ended December
      31, 2003                |                              |  |                                 | 
|Banks                                             | 416                          |  | 4%                              | 
|Commercial paper                                  |                              |  |                                 | 
|Borrowings from nonconsolidated
        companies | 25                           |  | 3%                              | 
|                                                  |                              |  |                                 | 
|Year ended December
      31, 2004                |                              |  |                                 | 
|Banks                                             | 241                          |  | 5%                              | 
|Commercial paper                                  |                              |  |                                 | 
|Borrowings from nonconsolidated
        companies | 17                           |  | 2%                              | 
|                                                  |                              |  |                                 | 

Commercial paper relates
  to Akzo Nobels commercial paper program in the United States, which at
  December 31, 2004, as at December 31, 2003, had a maximum of USD 1.0 billion
  (year-end 2004:EUR 0.7
  billion; year-end 2003: EUR 0.8 billion), and to Akzo Nobels Euro commercial
  paper program, which at December 31, 2004, as at December 31, 2003, had a maximum
  of EUR 1.5 billion. At December 31, 2004, and at December 31, 2003, there was
  no commercial paper outstanding.

|(10) | Current Liabilities
|---- | -------------------
|     |                    

|                                                         |       |  |       | 
|-------------------------------------------------------- | ----- |  | ----- | 
|Millions of euros                                        | 2004  |  | 2003  | 
|                                                         |       |  |       | 
|Prepayments by customers                                 | 17    |  | 14    | 
|Payable to suppliers                                     | 1,146 |  | 1,091 | 
|Taxes and social security
        contributions          | 531   |  | 361   | 
|Amounts payable to employees                             | 289   |  | 329   | 
|Dividends                                                | 1     |  | 3     | 
|Pensions                                                 | 135   |  | 313   | 
|Current portion of long-term
        liabilities related |       |  |       | 
|to restructurings                                        | 121   |  | 169   | 
|Current portion of other
        long-term liabilities   | 249   |  | 153   | 
|Other                                                    | 567   |  | 410   | 
|                                                         |       |  |       | 
|Total                                                    | 3,056 |  | 2,843 | 
|                                                         |       |  |       | 

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144

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

|(11) | Long-term Borrowings
|---- | --------------------
|     |                     

|                            |       |   |       |  
|--------------------------- | ----- | - | ----- | -
|Millions of euros           | 2004  |   | 2003  |  
|                            |       |   |       |  
|Debentures                  | 2,508 |   | 2,551 |  
|Debt to credit institutions | 94    |   | 77    |  
|Other borrowings            | 92    |   | 89    |  
|                            |       |   |       |  
|                            | 2,694 |   | 2,717 |  
|Current portion             | (302  | ) | (40   | )
|                            |       |   |       |  
|Total                       | 2,392 |   | 2,677 |  
|                            |       |   |       |  

Debentures and other borrowings
  can be specified as follows:

|                                                                                  |       |                          |       |      |    
|--------------------------------------------------------------------------------- | ----- | ------------------------ | ----- | ---- | ---
|Millions
      of euros                                                           |       | 2004                     |       | 2003 |    
|                                                                                  |       |                          |       |      |    
|Debentures                                                                        |       |                          |       |      |    
|7                                                                                 | %     | 1995 maturing 2005       | 227   |      | 227
|5.38                                                                              | %     | 1998 maturing 2008       | 512   |      | 512
|5.63                                                                              | %     | 2002 maturing 2009       | 825   |      | 851
|4.25                                                                              | %     | 2003 maturing 2011       | 750   |      | 750
|6.44                                                                              | %     | 1997 maturing 2007 (USD) | 75    |      | 82 
|6.54                                                                              | %     | 1997 maturing 2012 (USD) | 105   |      | 114
|Other debenture
        loans with various currencies, rates approximately 6% and |       |                          |       |     
|various maturities                                                                | 14    |                          | 15    |     
|                                                                                  |       |                          |       |     
|                                                                                  | 2,508 |                          | 2,551 |     
|                                                                                  |       |                          |       |     

|Debt to credit institutions                            |    |  |    | 
|------------------------------------------------------ | -- |  | -- | 
|                                                       |    |  |    | 
|Debt with various currencies
        and various rates | 94 |  | 77 | 
|                                                       |    |  |    | 
|                                                       | 94 |  | 77 | 
|                                                       |    |  |    | 

|Other borrowings                                                                   |    |  |    | 
|---------------------------------------------------------------------------------- | -- |  | -- | 
|Borrowings with various
        currencies, various rates, and various maturities; |    |  |    | 
|including capital lease
        obligations                                        | 92 |  | 89 | 
|                                                                                   |    |  |    | 
|                                                                                   | 92 |  | 89 | 
|                                                                                   |    |  |    | 

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145

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

Aggregate maturity is as
    follows:

|                  |       | 
|----------------- | ----- | 
|Millions of euros | 2004  | 
|                  |       | 
|2005              | 302   | 
|2006              | 21    | 
|2007              | 81    | 
|2008              | 520   | 
|2009              | 844   | 
|Later             | 926   | 
|                  |       | 
|Total             | 2,694 | 
|                  |       | 

The average interest rate
  was 4.9 percent in 2004, 5.1 percent in 2003, and 5.9 percent in 2002.

None of the debt to credit
  institutions and other borrowings have been secured by mortgages etc.

At December 31, 2004, the
    total amount of long-term credit facilities arranged by Akzo Nobel was EUR
    1.5 billion (at December 31, 2003: EUR 1.5 billion). Neither at the end of
    2004 nor at the end of 2003, the facilities were used.

(12) Long-term Liabilities

|                                                       |       |  |       | 
|------------------------------------------------------ | ----- |  | ----- | 
|Millions of euros                                      | 2004  |  | 2003  | 
|                                                       |       |  |       | 
|Deferred taxes                                         | 479   |  | 590   | 
|Pension and postretirement
        benefits other than | 2,234 |  | 2,226 | 
|pensions                                               |       |  |       | 
|Restructuring of activities                            | 120   |  | 120   | 
|Environmental costs                                    | 205   |  | 183   | 
|Other                                                  | 181   |  | 188   | 
|                                                       |       |  |       | 
|Total                                                  | 3,219 |  | 3,307 | 
|                                                       |       |  |       | 

Deferred Tax ProvisionsFor details on the total
  position for deferred taxes reference is made to Note 20.

Provisions for Pensions
  and Postretirement Benefits other than PensionsAkzo Nobel has a number of
  defined benefit pension plans covering the majority of employees. The benefits
  for these plans are based primarily on years of service and employees' compensation.
  The funding policy for the plans is consistent with local requirements in the
  countries of establishment.

Obligations under the defined
  benefit plans are systematically provided for by depositing funds with trustees
  or separate foundations, under insurance policies, or by balance sheet provisions.
  Plan assets principally consist of long-term interest-earning investments, quoted
  equity securities, and real estate.

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146

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

Akzo Nobel also provides
  certain healthcare and life insurance benefits for most of the Company's retired
  employees in the United States and the Netherlands. The Company accrues for
  the expected costs of providing such postretirement benefits during the years
  that the employee renders the necessary services.

Valuations of the obligations
  under the pension and other postretirement plans are carried out by independent
  actuaries. The measurement date for the pension and postretirement plans in
  the Netherlands is December 31. The measurement date for most foreign plans
  is September 30, with due allowance for contribution and benefit payments during
  the fourth quarter.

Below a table is provided
    with a summary of the changes in the pension benefit obligation and plan
    assets for 2004 and 2003.

|                                     |                       |      |         |      |        |      |        |      |        |     
|------------------------------------ | --------------------- | ---- | ------- | ---- | ------ | ---- | ------ | ---- | ------ | ----
|                                     | The
      Netherlands |      | Foreign |      | Total  |     
|Millions of euros                    | 2004                  | **** | 2003    | **** | 2004   | **** | 2003   | **** | 2004   | ****
|                                     |                       |      |         |      |        |      |        |      |        |     
|Benefit obligation                   |                       |      |         |      |        |      |        |      |        |     
|Balance at beginning
      of year   | (4,138                | )    | (4,023  | )    | (4,229 | )    | (4,332 | )    | (8,367 | )   
|Acquisitions                         |                       |      | (3      | )    |        |      | (15    | )    |        |     
|Settlements/curtailments             | 167                   |      |         |      | 1      |      |        |      | 168    |     
|Service costs                        | (130                  | )    | (141    | )    | (79    | )    | (76    | )    | (209   | )   
|Contribution by employees            | (22                   | )    | (22     | )    | (17    | )    | (10    | )    | (39    | )   
|Interest costs                       | (212                  | )    | (207    | )    | (236   | )    | (225   | )    | (448   | )   
|Plan amendments                      |                       |      |         |      |        |      | (2     | )    |        |     
|Benefits paid                        | 202                   |      | 193     |      | 249    |      | 270    |      | 451    |     
|Actuarial gains and
        losses   | (242                  | )    | 65      |      | (91    | )    | (117   | )    | (333   | )   
|Changes in exchange
        rates    |                       |      |         |      | 104    |      | 278    |      | 104    |     
|                                     |                       |      |         |      |        |      |        |      |        |     
|Balance at end of
      year         | (4,375                | )    | (4,138  | )    | (4,298 | )    | (4,229 | )    | (8,673 | )   
|                                     |                       |      |         |      |        |      |        |      |        |     
|                                     |                       |      |         |      |        |      |        |      |        |     
|Plan assets                          |                       |      |         |      |        |      |        |      |        |     
|Balance at beginning
      of year   | 3,383                 |      | 3,086   |      | 2,948  |      | 2,896  |      | 6,331  |     
|Acquisitions                         |                       |      | 3       |      |        |      |        |      |        |     
|Settlements/curtailments             | (75                   | )    |         |      | (1     | )    |        |      | (76    | )   
|Contribution by employer             | 220                   |      | 148     |      | 96     |      | 102    |      | 316    |     
|Contribution by employees            | 22                    |      | 22      |      | 17     |      | 10     |      | 39     |     
|Benefits paid                        | (198                  | )    | (187    | )    | (216   | )    | (238   | )    | (414   | )   
|Actual return on plan
        assets | 354                   |      | 311     |      | 282    |      | 382    |      | 636    |     
|Changes in exchange
        rates    |                       |      |         |      | (82    | )    | (204   | )    | (82    | )   
|                                     |                       |      |         |      |        |      |        |      |        |     
|Balance at end of
      year         | 3,706                 |      | 3,383   |      | 3,044  |      | 2,948  |      | 6,750  |     
|                                     |                       |      |         |      |        |      |        |      |        |     
|Funded status                        | (669                  | )    | (755    | )    | (1,254 | )    | (1,281 | )    | (1,923 | )   
|                                     |                       |      |         |      |        |      |        |      |        |     
|                                     |                       |      |         |      |        |      |        |      |        |     
|Unrecognized net loss                | 592                   |      | 546     |      | 1,096  |      | 1,176  |      | 1,688  |     
|Unrecognized prior service           |                       |      |         |      |        |      |        |      |        |     
|costs                                | 123                   |      | 145     |      | 12     |      | 17     |      | 135    |     
|                                     |                       |      |         |      |        |      |        |      |        |     
|Net balances                         | 46                    |      | (64     | )    | (146   | )    | (88    | )    | (100   | )   
|                                     |                       |      |         |      |        |      |        |      |        |     

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147

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

The net balance of the
  pension benefit plans is recognized in the Consolidated Balance Sheet as follows:

|                                                                                                    |                       |   |         |   |        |  
|--------------------------------------------------------------------------------------------------- | --------------------- | - | ------- | - | ------ | -
|                                                                                                    | The
      Netherlands |   | Foreign |   | Total  |  
|Millions of euros                                                                                   | 2004                  |   | 2003    |   | 2004   |  
|                                                                                                    |                       |   |         |   |        |  
|Prepaid pension
      costs (under OtherAssets)                                                     | 49                    |   |         |   | 440    |  
|Provisions
      for pensions and otherpostretirement benefits
        (under Long-termLiabilities) | (246                  | ) | (319    | ) | (1,583 | )
|Intangible assets                                                                                   | 123                   |   | 145     |   | 14     |  
|Charged against shareholders
      equity                                                          | 120                   |   | 110     |   | 983    |  
|                                                                                                    |                       |   |         |   |        |  
|Net balances                                                                                        | 46                    |   | (64     | ) | (146   | )
|                                                                                                    |                       |   |         |   |        |  

For all plans, the accumulated
    benefit obligation exceeded plan assets both at December 31, 2004, and at
    December 31, 2003.

Details for the minimum pension
    liability are as follows :

|                                                                              |                       |   |         |   |        |   |        |   |        |   |        |  
|----------------------------------------------------------------------------- | --------------------- | - | ------- | - | ------ | - | ------ | - | ------ | - | ------ | -
|                                                                              | The
      Netherlands |   | Foreign |   | Total  |  
|Millions of euros                                                             | 2004                  |   | 2003    |   | 2004   |   | 2003   |   | 2004   |   | 2003   |  
|                                                                              |                       |   |         |   |        |   |        |   |        |   |        |  
|                                                                              |                       |   |         |   |        |   |        |   |        |   |        |  
|Accumulated benefit
      obligation                                          | (3,903                | ) | (3,698  | ) | (4,187 | ) | (4,117 | ) | (8,090 | ) | (7,815 | )
|Credit/(charge)
        to shareholders equity for minimum pension liability |                       |   |         |   |        |   |        |   |        |   |        |  
|-
      before taxes                                                          | (10                   | ) | 206     |   | 84     |   | 238    |   | 74     |   | 444    |  
|-
      after taxes                                                           | (11                   | ) | 134     |   | 78     |   | 168    |   | 67     |   | 302    |  
|                                                                              |                       |   |         |   |        |   |        |   |        |   |        |  

The 2004, 2003, and 2002 net
  periodic pension costs for the defined benefit pension plans were as follows:

|                                                                      |                       |   |         |   |       |   |      |   |      |   |      |   |      |  
|--------------------------------------------------------------------- | --------------------- | - | ------- | - | ----- | - | ---- | - | ---- | - | ---- | - | ---- | -
|                                                                      | The
      Netherlands |   | Foreign |   | Total |  
|Millions of euro                                                      | 2004                  |   | 2003    |   | 2002  |   | 2004 |   | 2003 |   | 2002 |   | 2004 |  
|                                                                      |                       |   |         |   |       |   |      |   |      |   |      |   |      |  
|Service
        costs for benefits earned during
          the period | 130                   |   | 141     |   | 138   |   | 79   |   | 76   |   | 88   |   | 209  |  
|Interest costs on
          projected benefitobligation               | 212                   |   | 207     |   | 198   |   | 236  |   | 225  |   | 250  |   | 448  |  
|Expected return on plan
        assets                                | (228                  | ) | (211    | ) | (225  | ) | (203 | ) | (182 | ) | (235 | ) | (431 | )
|Amortization of prior
      service costs                             | 14                    |   | 15      |   | 16    |   | 3    |   | 5    |   |     |   | 17   |  
|Amortization
        of net actuarial loss/(gain)                     | 10                    |   | 23      |   |      |   | 63   |   | 68   |   | 36   |   | 73   |  
|Amortization
      of transition(asset)/obligation                    |                       |   | (7      | ) | (8    | ) |      |   | 7    |   | 8    |   |      |  
|Settlement/curtailment
      loss/(gain)                              | (23                   | ) |         |   |       |   | 3    |   | 5    |   | 1    |   | (20  | )
|                                                                      |                       |   |         |   |       |   |      |   |      |   |      |   |      |  
|Net periodic pension
        costs                                    | 115                   |   | 168     |   | 119   |   | 181  |   | 204  |   | 148  |   | 296  |  
|                                                                      |                       |   |         |   |       |   |      |   |      |   |      |   |      |  

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148

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS OF AKZO NOBEL

The principal defined benefit pension plans cover approximately 50 percent of Akzo Nobel's employees. The remaining plans primarily represent defined contribution plans. Expenses for these plans totaled EUR 41 million in 2004, EUR 39 million in 2003, and EUR 31 million in 2002.

The weighted average assumptions underlying the computations were:

|                                         |                       |      |         |      |       |      |  |      |  |      |  |      |  |     
|---------------------------------------- | --------------------- | ---- | ------- | ---- | ----- | ---- |  | ---- |  | ---- |  | ---- |  | ----
|                                         | The
      Netherlands |      | Foreign |      | Total |     
|Percent                                  |                       | 2004 |         | 2003 |       | 2002 |  | 2004 |  | 2003 |  | 2002 |  | 2004
|                                         |                       |      |         |      |       |      |  |      |  |      |  |      |  |     
|Pension benefit
      obligation at      |                       |      |         |      |       |      |  |      |  |      |  |      |  |     
|December 31,                             |                       |      |         |      |       |      |  |      |  |      |  |      |  |     
|- discount rate                          |                       | 4.5  |         | 5.3  |       | 5.3  |  | 5.5  |  | 5.6  |  | 6.0  |  | 5.0 
|- rate of
        compensation increase  |                       | 2.5  |         | 2.5  |       | 3.0  |  | 4.0  |  | 3.8  |  | 4.2  |  | 3.2 
|Net periodic pension
      costs         |                       |      |         |      |       |      |  |      |  |      |  |      |  |     
|- discount rate                          |                       | 5.3  |         | 5.3  |       | 5.5  |  | 5.6  |  | 6.0  |  | 6.4  |  | 5.4 
|- rate of compensation
        increase  |                       | 2.5  |         | 3.0  |       | 3.0  |  | 3.8  |  | 4.2  |  | 4.4  |  | 3.2 
|- expected return on
        plan assets |                       | 6.8  |         | 6.8  |       | 7.0  |  | 6.7  |  | 6.7  |  | 7.3  |  | 6.7 
|                                         |                       |      |         |      |       |      |  |      |  |      |  |      |  |     

The assumptions for the expected return on plan assets were based on a review of the historical returns of the asset classes in which the assets of the pension plans are invested. The historical returns on these asset classes were weighted based on the expected long-term allocation of the assets of the pension plans.

Akzo Nobels primary objective with regard to the investment of pension plan assets is to ensure that in each individual scheme sufficient funds are available to satisfy future benefit obligations. For this purpose so-called asset and liability management (ALM) studies are made periodically at each pension fund. For each of the pension plans an appropriate mix is determined on the basis of the outcome of these ALM studies, taking into account the national rules and regulations. Pension plan assets principally consist of long-term interest-earning investments, quoted equity securities, and real estate.

The pension plan asset allocation at December 31, 2004 and 2003, and the target allocation for 2005 for the pension plan in the Netherlands by asset category are as follows:

|                                             |  |                         |  |                                                 |  |      | 
|-------------------------------------------- |  | ----------------------- |  | ----------------------------------------------- |  | ---- | 
|                                             |  | Target
      allocation |  | Percentage
      of plan assets at December 31, | 
|Percent                                      |  | 2005                    |  | 2004                                            |  | 2003 | 
|                                             |  |                         |  |                                                 |  |      | 
|                                             |  |                         |  |                                                 |  |      | 
|Equity securities                            |  | 30-50                   |  | 44                                              |  | 42   | 
|Long-term interest earning
      investments |  | 40-60                   |  | 45                                              |  | 46   | 
|Real estate                                  |  | 7.5-12.5                |  | 10                                              |  | 9    | 
|Other                                        |  | 0-10                    |  | 1                                               |  | 3    | 
|                                             |  |                         |  |                                                 |  |      | 
|Total                                        |  |                         |  | 100                                             |  | 100  | 
|                                             |  |                         |  |                                                 |  |      | 

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149

NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS OF AKZO NOBEL

The weighted pension plan asset allocation at December 31, 2004 and 2003, and the target allocation for 2005, for the foreign pension plans by asset category are as follows :

|                                             |                          
|-------------------------------------------- | -------------------------
|                                             | Target
        allocation
|Percent                                      |                          
|                                             |                          
|Equity securities                            | 50-55                    
|Long-term interest earning
      investments | 35-40                    
|Real estate                                  | 5-10                     
|Other                                        | 0-5                      
|                                             |                          
|Total                                        |                          
|                                             |                          

Postretirement benefit plans concern healthcare benefits plans in the Netherlands and the United States. Below a table is provided with a summary of the changes in the accumulated postretirement benefit obligations and plan assets for 2004 and 2003.

|                                       |                      
|-------------------------------------- | ---------------------
|                                       | The
      Netherlands
|                                       |                      
|Millions of euros                      |                      
|                                       |                      
|Benefit obligation                     |                      
|Balance at beginning
      of year     |                      
|Settlements/curtailments               |                      
|Service costs                          |                      
|Interest costs                         |                      
|Benefits paid                          |                      
|Actuarial gains and losses             |                      
|Changes in exchange rates              |                      
|                                       |                      
|Balance at end of
      year           |                      
|                                       |                      
|Plan assets                            |                      
|Balance at beginning
      of year     |                      
|Benefits paid                          |                      
|Actual return on plan
      assets     |                      
|Changes in exchange rates              |                      
|                                       |                      
|Balance at end of
      year           |                      
|                                       |                      
|Funded status                          |                      
|                                       |                      
|Unrecognized net loss                  |                      
|Unrecognized prior service
      costs |                      
|                                       |                      
|Net balances                           |                      
|                                       |                      

The net balances of other postretirement benefit plans are all recognized in the Consolidated Balance Sheet under provisions for pensions and other postretirement benefits (under provisions).

The 2004 actuarial gains in the United States include the effect of the Medicare Prescription Drug
Improvement and Modernization Act of 2003, which introduces prescription drug benefits for retirees as well

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150

NOTES TO THE CONSOLIDATED
  FINANCIAL STATEMENTS OF AKZO NOBEL

as a federal subsidy to sponsors
  of postretirement healthcare plans, which will both begin on January 1, 2006.

Net periodic other postretirement benefit costs are as follows:

|                                    |                
|----------------------------------- | ---------------
|                                    | The Netherlands
|Millions of euros                   |                
|                                    |                
|                                    |                
|Service costs for benefits          |                
|allocated to the period             |                
|Interest costs
      on accumulated |                
|postretirement obligation           |                
|Amortization of prior service       |                
|costs                               |                
|Net actuarial loss recognized       |                
|Curtailment loss/(gain)             |                
|                                    |                
|Net periodic other                  |                
|postretirement benefit costs        |                
|                                    |                

Weighted average assumptions for postretirement benefits were as follows :

|                                   |     
|---------------------------------- | ----
|                                   |     
|*Percent*                          |     
|                                   |     
|Discount rate for net
    periodic |     
|benefit cost                       |     
|Discount rate for benefit          |     
|obligations at December 31         |     
|Assumed healthcare cost            |     
|trend rates at December 31 :       |     
|- healthcare trend rate            |     
|assumed for next year              |     
|- rate to which the cost rate is   |     
|assumed to decline                 |     
|(the ultimate rate)                |     
|- year that the rate reaches       |     
|the ultimate trend rate            | 2005
|                                   |     

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151

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

Assumed healthcare cost trend
  rates have a significant effect on the amounts reported for the healthcare plans.
  A one percentage point change in assumed healthcare cost trend rates would have
  the following effects:

|                                                      |                              
|----------------------------------------------------- | -----------------------------
|                                                      | **The
          Netherlands**
|                                                      | 1
      percentage point     
|Millions of euros                                     | increase                     
|                                                      |                              
|Effect on total of service
        and interest costs | 2                            
|Effect on postretirement
        benefit obligation   | 13                           
|                                                      |                              

Cash FlowsThe Company expects
to contribute EUR 237 million to its pension plans in 2005, of which EUR 149
million for the pension plan in the Netherlands and EUR 88 million for the foreign
pension plans.

The following benefit payments,
    which take into account the effect of future service, are expected to be
    paid.

|                  |              |  |                                         | 
|----------------- | ------------ |  | --------------------------------------- | 
|                  | **Pensions** |  | **Other
          retirement benefits** | 
|                  | The          |  |                                         | 
|Millions of euros | Netherlands  |  | Foreign                                 | 
|                  |              |  |                                         | 
|2005              | 197          |  | 239                                     | 
|2006              | 205          |  | 244                                     | 
|2007              | 214          |  | 247                                     | 
|2008              | 225          |  | 247                                     | 
|2009              | 235          |  | 252                                     | 
|2010-2014         | 1,357        |  | 1,322                                   | 
|                  |              |  |                                         | 

Provisions for Restructuring
        of ActivitiesProvisions for
restructuring of activities comprise accruals for certain employee termination
benefits and for costs which are directly associated with plans to exit specific
activities, primarily related to costs associated with closing down facilities.

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152

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

The changes in these provisions
  (including the short-term portion) are summarized as follows:

|                                                            |             |   |       |   |           |  
|----------------------------------------------------------- | ----------- | - | ----- | - | --------- | -
|                                                            | Termination |   | Exit  |   | Total     |  
|Millions of euros                                           | benefits    |   | costs |   | provision |  
|                                                            |             |   |       |   |           |  
|                                                            |             |   |       |   |           |  
|Balance at December
          31, 2001                      | 225         |   | 175   |   | 400       |  
|Changes in exchange
        rates                           | (3          | ) | (11   | ) | (14       | )
|Additions charged to
        income as restructuring charge | 68          |   | 55    |   | 123       |  
|Other additions charged
        to income                   | 15          |   | 9     |   | 24        |  
|Utilization                                                 | (123        | ) | (78   | ) | (201      | )
|                                                            |             |   |       |   |           |  
|Balance at December
          31, 2002                      | 182         |   | 150   |   | 332       |  
|Changes in exchange
        rates                           | (4          | ) | (6    | ) | (10       | )
|Additions charged to
        income as restructuring charge | 149         |   | 21    |   | 170       |  
|Other additions charged
        to income                   | 14          |   | 4     |   | 18        |  
|Divestiture                                                 |            |   | (2    | ) | (2        | )
|Utilization                                                 | (133        | ) | (86   | ) | (219      | )
|                                                            |             |   |       |   |           |  
|Balance at December
          31, 2003                      | 208         |   | 81    |   | 289       |  
|Changes in exchange
        rates                           |             |   | (2)   |   | (2        | )
|Additions charged to
        income as restructuring charge | 95          |   | 31    |   | 126       |  
|Other additions charged
        to income                   | (12         | ) | 14    |   | 2         |  
|Divestiture                                                 | (2          | ) |       |   | (2        | )
|Utilization                                                 | (119        | ) | (53   | ) | (172      | )
|                                                            |             |   |       |   |           |  
|Balance at December
          31, 2004                      | 170         |   | 71    |   | 241       |  
|                                                            |             |   |       |   |           |  

At December 31, 2004, the
    provision for termination benefits involves 2,870 employees that either already
    have been terminated or will be terminated in the near future (December 31,
    2003: 3,200).

Provisions for Environmental
        CostsFor details on
environmental exposures reference is made to Note 14.

Other provisions Other provisions relate
    to a great variety of risks and commitments, including provisions for antitrust
    cases of EUR 180 million. Reference is made to Note 14.

|(13) | Shareholders' Equity
|---- | --------------------

Capital StockAuthorized capital
stock of Akzo Nobel N.V. is EUR 1,600,019,200 and consists of 48 priority shares
of EUR 400, 600 million common shares of EUR 2 and 200 million cumulative preferred
shares of EUR 2. Subscribed share capital consists of 48 priority shares, 286,147,260
common shares, and no preferred shares.

In 2004, no common shares
    were issued. In connection with Akzo Nobels stock option plan, the
    Company held 374,021 common shares at December 31, 2004 (December 31, 2003:
    455,303, when it also included shares for Akzo Nobels Employee Share
    Plan).

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153

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL



The priority shares are
    held by “AKZO NOBEL STICHTING” (Akzo Nobel Foundation), an organization
    controlled by the Supervisory Board and the Board of Management of Akzo Nobel
    N.V. The Meeting of Holders of Priority Shares submits lists of nominees
    for the appointment to the Supervisory Board and the Board of Management
    of Akzo Nobel N.V. The General Meeting of Shareholders votes upon these lists
    of nominees. Amendment of the Articles of Association and dissolution of
    the Company shall require the approval of the Meeting of Holders of Priority
    Shares. The Articles of Association were amended after approval by the General
    Meeting of Shareholders of April 21, 2005. The main elements of the amendment
    of the Articles are described in Item 10.B.

The Board of Management
    is authorized to determine, with the approval of the Supervisory Board, the
    share of the profits to be added to retained earnings. The remainder of the
    profits shall be available for dividends to shareholders as follows: first
    to priority shares at 6 percent or the statutory interest whichever is lower,
    of their par value, with the balance available to common shares.

In case of liquidation,
    from the balance remaining after payment of debts, the holders of priority
    shares and common shares shall in that order be repaid the par value of their
    shares. From the balance remaining thereafter, accrued and unpaid dividends,
    if any, shall be paid first on the priority shares. Any balance remaining
    thereafter shall be distributed among the holders of common shares, pro rata
    according to the number of common shares.

According to Netherlands
    law, each holder of common shares has a preemptive right to acquire any issue
    of shares pro rata to the aggregate amount of his shares.

Each common share is entitled
    to one vote.

2004 Dividend ProposalIt is proposed
that dividend on priority shares of EUR 768 and on common shares of EUR 343 million
will be distributed. Following acceptance of this proposal, holders of common
shares will receive a dividend of EUR 1.20 per share of EUR 2, of which EUR 0.30
was paid earlier as an interim dividend. The final dividend of EUR 0.90 will
be made payable from May 2, 2005.

Statutory reservesAt the Annual
Meeting of Shareholders of April 26, 2001, an amendment of the Articles of Association
was approved whereby the par value of the priority shares was adjusted from NLG
1,000 to EUR 400 and of the common shares and the cumulative preferred shares
from NLG 5 to EUR 2. As the revised par values are somewhat lower than the original
par values, in accordance with section 67a of Book 2 of the Netherlands Civil
Code, the Company recognized a statutory reserve of EUR 77 million for this reduction
in subscribed share capital. Statutory reserves also include EUR 8 million for
capitalized development costs, as well as the reserves relating to the earnings
retained by affiliated companies after 1983. The latter statutory reserves have
been calculated by the so-called collective method.

Stock Options/Stock
  Appreciation Rights

Stock OptionsOptions are granted
  to all members of the Board of Management, Senior Vice Presidents and Executives.
  The number of participants was 733 in 2004 (2003: 762). The options for Senior
  Vice Presidents and Executives expire after five years; while options granted
  from 2002 expire after seven years. Options (conditionally) granted to members
  of the Board of Management as from 2000 expire after ten years. Options

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154

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

(conditionally) granted to members of the
    Board of Management as from 2000 expire after ten years. Options granted
    from 2003 onwards expire after seven years. All outstanding options from
    the series 1999, which were exercisable immediately upon grant, lapsed in
    2004. Options issued as from 1999 cannot be exercised during the first three
    years. The Company currently does not purchase own shares in connection with
    its stock option plan.

No financing facilities exist
  for option rights or tax payable thereon. One option entitles the holder thereof
  to buy one Akzo Nobel N.V. common share of EUR 2 or one American Depositary
  Share (ADS). The exercise price is the Euronext Amsterdam opening price on the
  first day that the Akzo Nobel share is quoted ex dividend, or the opening price
  for an ADS on NASDAQ/NMS on the first day that the Akzo Nobel ADS is quoted
  ex dividend. For a certain portion of option rights granted in 2002 common shares
  were purchased. See also the disclosure under subscribed capital.

Options outstanding at December 31, 2004,
    have the following exercise prices and expiry dates:

|                             |                |  |                   |  |                | 
|---------------------------- | -------------- |  | ----------------- |  | -------------- | 
|                             |                |  | Outstanding at    |  |                | 
|Year of issue                | Exercise price |  | December 31, 2004 |  | Expiry date    | 
|                             |                |  |                   |  |                | 
|Common Shares                | In EUR         |  |                   |  |                | 
|                             |                |  |                   |  |                | 
|Vested options               |                |  |                   |  |                | 
|2000                         | 44.82          |  | 853,700           |  | April 27, 2005 | 
|2000                         | 44.82          |  | 148,500           |  | April 27, 2010 | 
|2001                         | 46.75          |  | 852,500           |  | April 30, 2006 | 
|2001                         | 46.75          |  | 144,342           |  | April 30, 2011 | 
|                             |                |  |                   |  |                | 
|                             |                |  | 1,999,042         |  |                | 
|Unvested options             |                |  |                   |  |                | 
|2002                         | 46.53          |  | 852,440           |  | April 25, 2009 | 
|2002                         | 46.53          |  | 176,550           |  | April 25, 2012 | 
|2003                         | 19.51          |  | 974,930           |  | April 22, 2010 | 
|2004                         | 31.45          |  | 899,980           |  | April 25, 2011 | 
|                             |                |  |                   |  |                | 
|                             |                |  | 2,903,900         |  |                | 
|American Depositary Receipts | In USD         |  |                   |  |                | 
|                             |                |  |                   |  |                | 
|Vested options               |                |  |                   |  |                | 
|2001                         | 41.69          |  | 137,610           |  | April 30, 2006 | 
|Unvested options             |                |  |                   |  |                | 
|2002                         | 42.05          |  | 140,690           |  | April 25, 2009 | 
|2003                         | 21.21          |  | 181,610           |  | April 22, 2010 | 
|2004                         | 37.25          |  | 205,700           |  | April 25, 2011 | 
|                             |                |  |                   |  |                | 
|                             |                |  | 665,610           |  |                | 
|                             |                |  |                   |  |                | 
|                             |                |  |                   |  |                | 
|Total                        |                |  | 5,568,552         |  |                | 
|                             |                |  |                   |  |                | 

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155

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

Stock option activity during the periods indicated
    was as follows:

|                             |                     |   |                                    | 
|---------------------------- | ------------------- | - | ---------------------------------- | 
|                             | Common
      shares |   | American
      Depositary Receipts | 
|                             |                     |   |                                    | 
|                             |                     |   | Weighted-                          | 
|                             |                     |   | average                            | 
|                             | Number
      of     |   | exercise
      price,              | 
|                             | options             |   | in
      EUR                       | 
|                             |                     |   |                                    | 
|Balance at December 31, 2001 | 3,658,676           |   | 44.76                              | 
|Granted                      | 1,063,970           |   | 46.53                              | 
|Exercised                    | (106,056            | ) | 36.66                              | 
|Forfeited                    | (41,880             | ) | 45.28                              | 
|                             |                     |   |                                    | 
|Balance at December 31, 2002 | 4,574,710           |   | 45.35                              | 
|Granted                      | 998,030             |   | 19.51                              | 
|Exercised                    |                    |   |                                    | 
|;Forfeited                   | (486,940            | ) | 46.49                              | 
|                             |                     |   |                                    | 
|Balance at December 31, 2003 | 5,085,800           |   | 40.17                              | 
|Granted                      | 904,480             |   | 31.45                              | 
|Exercised                    |                    |   |                                    | 
|Forfeited                    | (1,087,338          | ) | 42.33                              | 
|                             |                     |   |                                    | 
|Balance at December 31, 2004 | 4,902,942           |   | 38.08                              | 
|                             |                     |   |                                    | 
|

The fair values at grant date for the options
    granted during 2002 to 2004 were as follows:

|                             |                |  |               
|---------------------------- | -------------- |  | --------------
|                             |                |  |               
|Year of issue                | Exercise price |  | Expiry date   
|                             |                |  |               
|Common Shares                | In EUR         |  |               
|                             |                |  |               
|2002                         | 46.53          |  | April 25, 2009
|2002                         | 46.53          |  | April 25, 2012
|2003                         | 19.51          |  | April 22, 2010
|2004                         | 31.45          |  | April 25, 2011
|                             |                |  |               
|                             |                |  |               
|American Depositary Receipts | In
        USD |  |               
|                             |                |  |               
|2002                         | 42.05          |  | April 25, 2009
|2003                         | 21.21          |  | April 22, 2010
|2004                         | 37.25          |  | April 25, 2011
|                             |                |  |               

The expected value of performance stock options
    for the Board of Management is based on the Binomial Option Pricing Model,
    using certain assumptions. These assumptions were used for these calculations
    only and do not necessarily represent an indication of Managements
    expectations of future developments. In addition, option valuation models
    require the input of highly subjective assumption, including expected share
    price volatility. The Companys employee stock options have characteristics
    significantly different from those of traded options and changes in the subjective
    assumptions used for the calculation can materially affect the fair value
    estimate.

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156

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

The assumptions used for the options granted
    during the years 2002, 2003, and 2004, were as follows:

|                                     |                              |  |                        |  |                     |  |                               | 
|------------------------------------ | ---------------------------- |  | ---------------------- |  | ------------------- |  | ----------------------------- | 
|Year
      of issue  year of expiry | Risk-freeinterest
      rate |  | Expecteddividend yield |  | Expectedoption life |  | Expectedshare pricevolatility | 
|                                     |                              |  |                        |  |                     |  |                               | 
|Common Shares                        |                              |  |                        |  |                     |  |                               | 
|2002  2009                          | 5.0%                         |  | 2.5%                   |  | 6.5
      yrs       |  | 30.6%                         | 
|2002  2012                          | 5.1%                         |  | 2.5%                   |  | 5 yrs               |  | 30.6%                         | 
|2003  2010                          | 3.3%                         |  | 3.6%                   |  | 5 yrs               |  | 33.7%                         | 
|2004  2011                          | 3.2%                         |  | 4.1%                   |  | 5 yrs               |  | 35.2%                         | 
|                                     |                              |  |                        |  |                     |  |                               | 
|American Depositary
      Receipts   |                              |  |                        |  |                     |  |                               | 
|2002  2009                          | 4.7%                         |  | 2.3%                   |  | 5 yrs               |  | 30.8%                         | 
|2003  2010                          | 2.8%                         |  | 3.6%                   |  | 5 yrs               |  | 31.8%                         | 
|2004  2011                          | 2.8%                         |  | 4.1%                   |  | 5 yrs               |  | 32.7%                         | 
|                                     |                              |  |                        |  |                     |  |                               | 

Performance Share Plan
  for the Board of ManagementIn 2004, a performance share
  plan for the Board of Management was introduced. Under this plan the Supervisory
  Board grants a number of conditional shares to the Board of Management each
  year. The actual number of shares the Board of Management will receive depends
  on the Companys Total Shareholder Return (TSR) performance over a three-year
  period, compared with TSR performance of a specified peer group. For further
  details see page 96 of this Annual Report. At December 31, 2004, the base number
  of common shares granted was 121,000.

Employee Share PlanUnder the Akzo Nobel Employee
  Share Plan, Akzo Nobel N.V. common shares were conditionally granted to the
  employees. Generally, these rights vested if the employee had remained in the
  Companys service for a period of three years. The number of shares granted
  varied from country to country.

In November 2003, the Board
  of Management decided to accelerate the settlement of this plan. The rights
  for all shares granted vested at May 1, 2004.

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157

NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS OF AKZO NOBEL

Shareholders
  equity

|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|-------------------------------------------------------- | ------------------------ |  | ------------- | ----------------------- |  | ---------------------- |  | ------------- |  | -------------------------------------- |  | ------------------------ | - | ---------------------------------------------------------- | - | -------------------- | - | --------------------------- | - | -------------------------------- | - | ------------------------------------- | -- | ------ | -
|                                                         | Thousands
      of euros |  |               | Millions
      of euros |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |  
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|                                                         | Priority
      shares    |  |               | Common
      shares     |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |  
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|                                                         | Number
      of shares   |  | Share capital |                         |  | Number
      of shares |  | Share capital |  | Additional
      paid-in
      capital |  | Statutory
      reserves |   | Foreign
      currency
      translation
      adjustments |   | Other
      reserves |   | Undistributed
      profits |   | Capital
      and
      reserves |   | Minimum
      pension
      liability |    | Total  |  
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Balance at December 31,
      2001                       | 48                       |  | 20            |                         |  | 286,044,300            |  | 572           |  | 1,799                                  |  | 83                       |   | (721                                                       | ) | 600                  |   | 585                         |   | 2,918                            |   | (40                                   | )  | 2,878  |  
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Net income                                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   | 818                         |   | 818                              |   |                                       |    | 818    |  
|Dividends1                                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   | (343                        | ) | (343                             | ) |                                       |    | (343   | )
|Addition to other reserves                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   | 328                  |   | (328                        | ) |                                  |   |                                       |    |        |  
|Issuance of common stock
      dueto exercise of options |                          |  |               |                         |  | 102,960                |  |               |  | 4                                      |  |                          |   |                                                            |   |                      |   |                             |   | 4                                |   |                                       |    | 4      |  
|Purchase of common shares,
      net                     |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   | (6                   | ) |                             |   | (6                               | ) |                                       |    | (6     | )
|Changes in minimum pensionliability                      |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   | (1,078                                | )  | (1,078 | )
|Capitalized development
      cost                       |                          |  |               |                         |  |                        |  |               |  |                                        |  | (1                       | ) |                                                            |   | 1                    |   |                             |   |                                 |   |                                       |    |        |  
|Foreign currency translationadjustments                  |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   | (175                                                       | ) |                      |   |                             |   | (175                             | ) |                                       |    | (175   | )
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Balance at December 31,
      2002                       | 48                       |  | 20            |                         |  | 286,147,260            |  | 572           |  | 1,803                                  |  | 82                       |   | (896                                                       | ) | 923                  |   | 732                         |   | 3,216                            |   | (1,118                                | )  | 2,098  |  
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Net income                                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   | 602                         |   | 602                              |   |                                       |    | 602    |  
|Dividends1                                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   | (343                        | ) | (343                             | ) |                                       |    | (343   | )
|Addition to other reserves                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   | 475                  |   | (475)                       |   |                                  |   |                                       |    |        |  
|Purchase of common shares,
      net                     |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                            |   |                                 |   |                                       |    |       |  
|Changes in minimum pensionliability                      |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   | 294                                   |    | 294    |  
|Capitalized development
      cost                       |                          |  |               |                         |  |                        |  |               |  |                                        |  | 3                        |   |                                                            |   | (3                   | ) |                             |   |                                 |   |                                       |    |       |  
|Foreign currency translation adjustments                 |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   | (149                                                       | ) |                      |   |                             |   | (149                             | ) |                                       |    | (149   | )
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Balance at December 31,
      2003                       | 48                       |  | 20            |                         |  | 286,147,260            |  | 572           |  | 1,803                                  |  | 85                       |   | (1,045                                                     | ) | 1,395                |   | 516                         |   | 3,326                            |   | (824                                  | )2 | 2,502  |  
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Net income                                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   | 856                         |   | 856                              |   |                                       |    | 856    |  
|Dividends1                                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   | (343                        | ) | (343                             | ) |                                       |    | (343   | )
|Addition to other reserves                               |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   | 259                  |   | (259                        | ) |                                  |   |                                       |    |        |  
|Shareplan for Board of                                   |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Management and employees                                 |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   | (2                   | ) |                             |   | (2                               | ) |                                       |    | (2     | )
|Delivery of purchased
      of common shares             |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                     |   |                             |   |                                 |   |                                       |    |       |  
|Divested companies                                       |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   | 17                                                         |   | (17                  | ) |                             |   |                                  |   |                                       |    |        |  
|Changes in minimum pensionliability                      |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   | 65                                    |    | 65     |  
|Capitalized development
      cost                       |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                 |   |                                       |    |       |  
|Foreign currency translationadjustments                  |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   | (42                                                        | ) |                      |   |                             |   | (42                              | ) |                                       |    | (42    | )
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  
|Balance at December 31,
      2004                       | 48                       |  | 20            |                         |  | 286,147,260            |  | 572           |  | 1,803                                  |  | 85                       |   | (1,070                                                     | ) | 1,635                |   | 770                         |   | 3,795                            |   | (759                                  | )2 | 3,036  |  
|                                                         |                          |  |               |                         |  |                        |  |               |  |                                        |  |                          |   |                                                            |   |                      |   |                             |   |                                  |   |                                       |    |        |  

|1 | EUR 0.90
      per ordinary share and EUR 12.00 per priority share as final dividend for
      previous year, and EUR 0.30 and EUR 12.00, respectively, was declared as
      interim dividend for current year.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | Includes minimum pension
      liability for nonconsolidated companies of EUR 10 million (2003: EUR 8 million).                                                                                                 

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NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS OF AKZO NOBEL

(14) Commitments and Contingent Liabilities

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 generators 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 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, 2004 the aggregate environmental related long-term liabilities
    and accruals accounted for amounted to EUR 242 million (December 31, 2003:
    EUR 203 million). The liabilities have been discounted, using an average
    discount rate of 5.5 percent.

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NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

The obligations for environmental
    liabilities for each of the next five years and thereafter are as follows:

|                  |           
|----------------- | ----------
|Millions of euros | Obligation
|                  |           
|2005              | 62        
|2006              | 64        
|2007              | 35        
|2008              | 31        
|2009              | 30        
|Later             | 74        
|                  |           
|Total             | 296       
|                  |           

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 or cash
    flows in any one accounting period.

Antitrust CasesAkzo Nobel
  is involved in investigations by the antitrust authorities in the European Union,
  the United States, and Canada into alleged violations of the respective antitrust
  laws for some products in these jurisdictions. The Company is fully cooperating
  with the authorities in these investigations. In addition, the Company is defending
  civil damage claims in relation to some of these alleged antitrust violations.At
  December 31, 2003, the Company had a provision for antitrust cases of EUR 75
  million. Fines, civil damage settlements, and legal costs incurred in 2004 in
  connection with these cases amounted to EUR 5 million (2003: EUR 27 million).

In 2004, based on an estimate
    of probable fines, civil damage claims, 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 added EUR 110 million to the provision
    for antitrust cases. This addition to the provision also includes amounts
    related to the fines of EUR 21 million, imposed by the European Commission
    in December 2004 in connection with Akzo Nobel companies alleged involvement
    in a cartel for choline chloride, and of EUR 84,5 million, imposed by the
    European Commission in January 2005 for alleged involvement in a monochloroacetic
    acid cartel. The Company has appealed both decisions. At December 31, 2004,
    the provision for antitrust cases amounted to EUR 180 million.

In January 2005 the Company
    received a Statement of Objections by the EU Commission regarding an alleged
    EU cartel in Hydrogen Peroxide and Persalts. In this case as well as in investigations
    by the US DOJ and the Canadian Bureau of Competition into alleged antitrust
    violations in Hydrogen Peroxide in North America the Company is fully cooperating
    with the authorities. The Company believes that discussions with the US DOJ
    regarding a possible disposition of the matter may be finalized in the next
    few months.

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NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

With regard to Flexsys,
    a 50/50 joint venture for rubber chemicals with Solutia Inc., authorities
    in the United States, Canada, and Europe are investigating alleged antitrust
    violations in the rubber chemicals industry. We have been informed by Flexsys
    management that it is cooperating with the authorities and will continue
    to do so. In April 2005 both Flexsys and the Company received a Statement
    of Objections by the EU Commission. Based on this Statement of Objections
    the Company has reason to believe that Flexsys and the Company will not be
    fined by the EU Commission. We are also aware of a number of purported class
    actions and individual actions having been filed against Flexsys in federal
    court (by direct purchasers) and in various state courts (by alleged indirect
    purchasers) in the United States, and in the provinces of Quebec and Ontario,
    Canada. We are informed that fifteen of the U.S. state court actions have
    been dismissed against Flexsys on various grounds and that motions to dismiss
    or otherwise dispose of the remaining cases are still pending in seven remaining
    state cases. The Company is named as codefendant in the federal actions and
    in one state action in Tennessee. Flexsys has entered a settlement agreement
    with the plaintiffs in the federal class action, subject to certain conditions
    including but not limited to final court approval. (currently scheduled for
    June 21, 2005). The settlement resolves the plaintiffs claims against
    the Company. Flexsys has recognized certain provisions for these cases and
    the Company does not believe that it will be liable for funding any judgments
    against, settlements made by, or related costs incurred by Flexsys. The carrying
    value of the Companys investment in Flexsys, however, may be affected
    by these cases.

Other Litigation
  and Contingent Liabilities (Including Remeron® Cases)In December
  2002 summary judgment of noninfringement was obtained by certain generic drug
  manufacturers, sued by the Company under the U.S. Hatch-Waxman Act, alleging
  inducement of infringement by such manufacturers of the Company's U.S. patent
  protecting the use of mirtazapine (Remeron®) in combination with
  one or more SSRIs for the treatment of depression. Three of the generic drug
  manufacturers sued by the Company filed antitrust claims against the Company
  as counterclaims in the infringement actions brought by the Company. In addition,
  antitrust claims were filed against the Company in the United States on behalf
  of nine large chain store and grocery store pharmacies, and by alleged classes
  of direct and indirect purchasers of Remeron®. These cases were
  consolidated in the Federal District Court of New Jersey. In addition to these
  cases, the state attorneys general of the States of Texas, Florida, and Oregon
  opened civil investigations to determine if the Company's conduct violated their
  respective laws and the Federal Trade Commission (FTC), working with the State
  Attorneys General, opened a civil investigation to determine whether the Company
  violated federal law.

In April 2004, the Company
    reached settlements with the three generic manufacturers in an aggregate
    amount of USD 28 million. In September 2004, the Company reached a settlement
    with the indirect purchaser class (class of consumers and third party payers
    in the United States who paid for mirtazapine

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NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

during the relevant period)
    for total consideration of USD 36 million. This settlement also resolved
    the claims and investigations of the three state attorneys general that had
    commenced investigations as well as the claims of all other states. The FTC
    announced that in light of the states settlement it was closing its
    investigation without taking any action. The indirect purchasers and
    state attorneys general settlement is subject to certain conditions
    including, but not limited to, approval by the Federal District Court of
    New Jersey. In September 2004, the Company also settled with the nine large
    chain store and grocery store plaintiffs. The Company continues to believe
    that its actions in obtaining and enforcing its intellectual property rights
    were appropriate. However, given the costs and risks of defending these actions,
    the Company took the opportunity to resolve these matters. Including legal
    costs the Company recognized a total pretax charge of EUR 89 million for
    the Remeron® cases during 2004.

The action brought by
    an alleged class of direct purchasers remains pending in the Federal District
    Court in Newark, New Jersey. In September 2004, the District Court entered
    an order dismissing three of the five claims brought by those direct purchasers
    while denying the plaintiffs motion for partial summary judgment. In
    February 2005 the District Court entered an order denying the plaintiffs
    motion for partial summary judgment on the issue of establishing monopoly
    power and granting the Companys motion for summary judgment with respect
    to establishing monopoly power via the direct evidence approach.
    The Court indicated that it would address the Companys pending motion
    for summary judgment with respect to the traditional market definition
    approach in a future opinion. That motion, as well as the
    Companys motion for summary judgment addressed to plaintiffs
    two remaining claims, remain outstanding, as does the plaintiffs motion
    for class certification and its motion for partial summary judgment with
    respect to an aspect of one of its claims. No trial date has been set. The
    Company will continue to defend the remaining claims vigorously.

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. Furthermore, in the context of the divestitures
    of businesses the relevant Akzo Nobel companies have agreed to indemnify
    and/or provide guarantees to the buyers (and/or their successors and assigns)
    regarding certain representations and warranties or developments.

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

CommitmentsPurchase commitments
  for property, plant and equipment aggregated EUR 96 million at December 31,
  2004. At December 31, 2003, these commitments totaled EUR 80 million. In addition,
  the Company has purchase commitments for raw materials and supplies incident
  to the ordinary conduct of business.

Long-term liabilities
    contracted in respect of leasehold, rental, operational leases, research,
    etc., aggregated EUR 557 million at December 31, 2004 (at December 31, 2003:
    EUR 504 million). Payments due within one year amount to EUR 165 million
    (2003: EUR 153 million); payments due after more than five years amount to
    EUR 123 million (2003: EUR 84 million).

Expenses for non-cancelable
    operating leases and other commitments in 2004, 2003 and 2002 were EUR 153
    million, EUR 188 million and EUR 141 million, respectively.

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NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

Obligations under long-term
    non-cancelable operating leases and other commitments for each of the next
    five years and thereafter are as follows:

|                  |       |  |       |  |       | 
|----------------- | ----- |  | ----- |  | ----- | 
|Millions of euros | Lease |  | Other |  | Total | 
|                  |       |  |       |  |       | 
|2005              | 110   |  | 55    |  | 165   | 
|2006              | 77    |  | 33    |  | 110   | 
|2007              | 51    |  | 22    |  | 73    | 
|2008              | 32    |  | 14    |  | 46    | 
|2009              | 23    |  | 16    |  | 39    | 
|Later             | 86    |  | 38    |  | 124   | 
|                  |       |  |       |  |       | 
|Total             | 379   |  | 178   |  | 557   | 
|                  |       |  |       |  |       | 

GuaranteesGuarantees relating to nonconsolidated
    companies amounted to EUR 5 million (at December 31, 2003: EUR 9 million).
    As general partner in several partnerships, Akzo Nobel companies are liable
    for obligations incurred by these partnerships. At December 31, 2004, the
    risk ensuing from these liabilities was EUR 92 million (at December 31, 2003:
    EUR 139 million).

(15) Information about
      Financial Instruments

For information on the commercial
    paper programs reference is made to Note 9. For information on the standby
    multicurrency loan facility reference is made to Note 11.

Foreign Exchange Risk
  Management The Company routinely 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 are
    adversely affected by changes in exchange rates.

At December 31, 2004, outstanding
    contracts to buy currencies totaled EUR 1.1 billion (at December 31, 2003:
    EUR 1.4 billion), while contracts to sell currencies totaled EUR 0.9 billion
    (at December 31, 2003: EUR 1.6 billion). These contracts mainly relate to
    U.S. dollars, Canadian dollars, Swedish kronor, pounds sterling, and Japanese
    yen.

The Company does not use
    financial instruments to hedge the translation risk related to equity, intercompany
    loans of a permanent nature, and earnings of foreign subsidiaries and nonconsolidated
    companies.

Interest Risk Management In principle, the Company
    manages interest risk by financing noncurrent assets and a certain portion
    of current assets with equity, provisions, and long-term borrowings with
    fixed interest rates. The remainder of current assets is financed with short-term
    debt, including floating rate short-term borrowings. In line with this policy,
    a number of swap contracts and forward rate agreements have been entered
    into.

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163

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

The Company swapped EUR
    500 million fixed rate liabilities with an interest rate of 5.625 percent
    with floating rate LIBOR-related liabilities of USD 445 million and a remaining
    maturity of 4 years.

The Company swapped fixed
    rate liabilities with an interest rate of 4.25 percent with floating rate
    EURIBOR-related liabilities for an amount of EUR 650 million and a remaining
    maturity of 6 years.

The Company concluded forward
    rate agreements whereby the interest on deposits was fixed for an average
    volume of EUR 300 million in the range from 2.18% to 2.46%, ending October
    2005.

Fixed rate liabilities with
    an interest rate of 6.3 percent were swapped with floating rate EURIBOR-related
    liabilities for an amount of EUR 145 million and a remaining maturity of
    1 year. Floating rate EURIBOR-related liabilities were swapped with fixed
    rate liabilities with an interest rate of 5.3 percent for an amount of EUR
    145 million and a remaining maturity of 1 year.

|The
      above-mentioned Akzo Nobel financial instruments are accounted for as follows:
|----------------------------------------------------------------------------------------
|                                                                                        
|(a)                                                                                     
|(b)                                                                                     

Credit Risk
  Under the agreements concluded
    for its financial instruments, the Company is exposed to credit loss in the
    event of nonperformance by the counterparty to any one of these agreements.
    In the event of a counterpartys default, the resulting exposure would
    equal the difference between (a) the prevailing market interest rate and
    exchange rate and (b) the agreed swap interest and exchange rate. The Company
    has no reason to expect nonperformance by the counterparties to these agreements,
    given their high credit ratings.

Due to the geographical
    spread of the Company and the diversity of its customers, the Company is
    not subject to any material concentration of credit risks.

Commodities In order to hedge the price
    risk of natural gas, the Company has entered into swap contracts for the
    underlying fuels, with an average volume of 32,000 ton coal, 30,000 barrels
    of crude oil and 12,000 ton heavy fuel oil for the period January through
    October 2005, whereby the price is fixed. The Company also concluded futures
    contracts for the purchase of 1.0 million m3of
    gas, reasonably spread over the period January through June 2005.

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164

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

Fair Value of Financial
  Instruments The carrying values and
    estimated fair values of financial instruments do not differ materially with
    the exception of the following:

|                                    |                             |   |                             |   |          |   |            |  
|----------------------------------- | --------------------------- | - | --------------------------- | - | -------- | - | ---------- | -
|                                    | December
          31, 2004 |   | December
          31, 2003 |  
|                                    |                             |   |                             |   |          |   |            |  
|Millions of euros                   | Carrying                    |   | Estimated                   |   | Carrying |   | Estimated  |  
|Asset/(liability)                   | amount                      |   | fair value                  |   | amount   |   | fair value |  
|                                    |                             |   |                             |   |          |   |            |  
|Long-term borrowings                | (2,694                      | ) | (2,868                      | ) | (2,717   | ) | (2,834     | )
|Foreign currency contracts          | 11                          |   | 12                          |   | 93       |   | 91         |  
|Interest rate currency
        swap | 175                         |   | 237                         |   | 148      |   | 202        |  
|Interest swap contracts             |                            |   | 32                          |   |         |   | 4          |  
|Forward rate agreements             |                            |   |                            |   |         |   |           |  
|Petroleum swaps                     |                             |   |                            |   |          |   |            |  
|Gas futures                         |                             |   |                            |   |          |   | 2          |  
|Petroleum options                   |                             |   |                             |   |          |   | 2          |  
|                                    |                             |   |                             |   |          |   |            |  

The fair value of the Company's
    long-term borrowings is estimated based on the quoted market prices for the
    same or similar issues or on the current rates offered to the Company for
    debt with similar maturities.

The fair value of foreign
    currency contracts, swap contracts, forward rate agreements, petroleum options,
    and gas futures is estimated by calculation and obtaining quotes from dealers
    and brokers.

The carrying amounts of
    cash and cash equivalents, receivables, short-term borrowings and other current
    liabilities approximate fair value due to the short maturity period of those
    instruments.

The Company has no other
    significant financial instruments.

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165

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

(16) Restructuring and Impairment Charges

In 2004, 2003 and 2002, the following restructuring and impairment charges for consolidated companies were included:

|                     |     
|-------------------- | ----
|Millions of euros    | 2004
|                     |     
|Asset impairments at |     
|- Pharma             | (31 
|- Coatings           | (16 
|- Chemicals          | (27 
|Restructurings at:   |     
|- Pharma             | (20 
|- Coatings           | (38 
|- Chemicals          | (63 
|- Others             | (4  
|                     |     
|Total                | (199
|                     |     

2004Pharmas
restructuring losses mainly concern impairment and closure costs of the Organon
production site in West Orange, New Jersey, and other worldwide cost reduction
programs.

Coatings restructuring charges predominantly concern the rationalization programs at Car Refinishes.

Restructurings and impairments at Chemicals relate to the closure of a Surface Chemistry site in the United Kingdom, the chlorine production in Bohus, Sweden, and staff cuts at Polymer Chemicals in Germany.

In total, these restructurings affect 1,840 jobs worldwide.

As can be noted from the above, impairment charges mainly relate to assets on sites (to be) closed. The impairment was determined based on the estimated fair value at which the assets are expected to be sold. Assets, for which it is not possible to be sold, were written down to zero.

2003Impairment charges at Pharma were made in the context of the reassessment and redefinition of its global business, production, and marketing strategy. The writedowns concern facilities in the United States, Japan, United Kingdom, and some other countries. The impairment was determined based on the estimated fair value at which the assets are expected to be sold. Assets, for which it is not possible to be sold, were written down to zero.

The restructuring charges consist of provisions for severance payments and other restructuring costs. At Pharma, these predominantly concern the worldwide restructurings at Organon. Coatings charges
relate to the restructuring of Transportation Coatings and cost saving measures
at various other activities. At Chemicals, restructuring costs were incurred
for especially Polymer Chemicals, Surface Chemistry, Base Chemicals, and Chelates.

In total, these restructurings affect 2,165
jobs worldwide.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

2002Pharmas
  impairment include a write-down of EUR 67 million for the gepirone ER (Variza®)
  know-how intangible asset. In view of the developments in 2002, the chances
  of success have been reviewed. As a result, the Company decided to write down
  this intangible asset to zero. There were also several impairments related to
  the restructurings mentioned below, none of which were individually significant
  to the Consolidated Financial Statements.

The restructuring and impairment charges mainly relate to the Companys extended restructuring plans at all three groups, which affect 1,500 additional jobs worldwide.

(17) Gains on Divestments

|                   |     
|------------------ | ----
|Millions of euros  | 2004
|                   |     
|Gain on divestment | 509 
|                   |     

In 2004, the gain on divestments
  mainly related to the divestment of Catalysts, Phosphorus Chemicals and Coating
  Resins. It should be noted that, although the deals are final, no ultimate settlement
  has been reached yet for some of these divestments, so that amounts recognized
  at this moment are best estimates and could change in a later stage, once the
  final settlement has been reached.In
    2003, the gain on divestments mainly concerned the sale of Chemicals property
    in the United Kingdom.In 2002, it predominantly concerned the divestment
of Rosemont Pharmaceuticals in the United Kingdom.

(18) Other Results

The following items are included as other results:

|                                                                                            |     
|------------------------------------------------------------------------------------------- | ----
|Millions of euros                                                                           | 2004
|                                                                                            |     
|Special payments                                                                            | 38  
|Royalties                                                                                   | 76  
|Results on sale of redundant assets                                                         | 5   
|Pension premium refund Sweden                                                               |     
|Environmental charges for risks at derelict sites
        of companies acquired in the past | (21 
|Currency exchange differences                                                               | (4  
|Other items                                                                                 | 12  
|                                                                                            |     
|Total                                                                                       | 106 
|                                                                                            |     

In 2004, special payments include the payment
    for the full transfer of Arixtra®to
    Sanofi-Synthélabo and the early entrance fee for a marketing license
    for Remeron®in
Germany.

In 2003, special payments related to the cooperation
    agreement with Pfizer for asenapine.

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167

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

(19) Financing Charges

Interest expense was reduced by EUR 4 million, EUR 6 million, and EUR 7 million in 2004, 2003 and 2002, respectively, due to the capitalization of financing expenses of capital investment projects under construction.

(20) Income Taxes

The Company recognizes deferred tax assets in so far as their realization is more likely than not.

Tax charges/(benefits) are as follows:

|                                        |     
|--------------------------------------- | ----
|Millions of euros                       | 2004
|                                        |     
|Operating income less financing charges | 298 
|Nonconsolidated companies1              | 3   
|                                        |     
|                                        | 301 
|Minimum pension liability               | 7   
|                                        |     
|Total                                   | 308 
|                                        |     



|1 | Includes nonrefundable withholding taxes
        for dividends and income taxes relating to the Company's share in partnership
    earnings.
|- | --------------------------------------------------------------------------------------------------------------------------------------------
|2 | Includes the effect of the changes in
    enacted tax rate.                                                                                 

Pre-tax income (including earnings from nonconsolidated
companies) in the Netherlands and from foreign operations is as follows:

|                  |      
|----------------- | -----
|Millions of euros | 2004 
|                  |      
|                  |      
|The Netherlands   | 338  
|Foreign           | 854  
|                  |      
|Total             | 1,192
|                  |      

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168

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

The tax charges/(benefits) in the Netherlands
    and from foreign operations were as follows:

|                  |      |   |      |   |     
|----------------- | ---- | - | ---- | - | ----
|Millions of euros | 2004 |   | 2003 |   | 2002
|                  |      |   |      |   |     
|Current tax       |      |   |      |   |     
|The Netherlands   | 44   |   |      |   | 77  
|Foreign           | 302  |   |      |   | 136 
|                  |      |   |      |   |     
|                  |      |   | 346  |   |     
|Deferred tax      |      |   |      |   |     
|The Netherlands   | (3   | ) |      |   | (34 
|Foreign           | (42  | ) |      |   | 71  
|                  |      |   |      |   |     
|                  |      |   | (45  | ) |     
|                  |      |   |      |   |     
|Total             |      |   | 301  |   |     
|                  |      |   |      |   |     

Included in the deferred income tax expense
    (benefit) above are benefits of operating loss carryforwards of EUR 10 million,
    EUR 69 million, and EUR 29 million for the years ended December 31, 2004,
    2003, and 2002, respectively. Also included in the deferred income tax expense
    above are net adjustments of the beginning-of-the-year balance of the valuation
    allowance of an increase of EUR 1 million, an increase of EUR 5 million,
    and a decrease of EUR 1 million for the years ended December 31, 2004, 2003,
    and 2002, respectively.

The table below reconciles the normal corporation
    tax rates in the Netherlands to the effective consolidated rates in the statement
    of income.

|                                                                                  |      |   |      |   |      |  
|--------------------------------------------------------------------------------- | ---- | - | ---- | - | ---- | -
|Percentages                                                                       | 2004 |   | 2003 |   | 2002 |  
|                                                                                  |      |   |      |   |      |  
|Corporate tax rate in the Netherlands                                             | 35   |   | 35   |   | 35   |  
|Nontaxable income from nonconsolidated
        companies (excluding partnerships) | (2   | ) | (1   | ) | (4   | )
|Effect of lower tax rates in specific
        countries1)                         | (3   | ) | (3   | ) | (4   | )
|Tax exempt income/loss                                                            | (6   | ) | (1   | ) | (1   | )
|Change in valuation allowance                                                     | 1    |   | (2   | ) | 2    |  
|                                                                                  |      |   |      |   |      |  
|Total                                                                             | 25   |   | 28   |   | 28   |  
|                                                                                  |      |   |      |   |      |  

|1) | Includes the effect
      of changes in enacted tax rates.
|-- | ----------------------------------------------------------

Tax exempt income in 2004
  mainly concerns the non taxable gains on the divestments at Chemicals.

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169

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

At December 31, 2004, losses
  carried forward amounted to EUR 332 million, of which EUR 84 million will expire
  within five years. Losses in the amount of EUR 151 million expire after
  5 years. For an amount of EUR 97 million of losses, there is no expiration date.

The tax effects of temporary differences that
    give rise to significant portions of the deferred tax assets and deferred
    tax liabilities at December 31, 2004 and 2003, are presented below.

|                                                                                                                                |      |   |      |  
|------------------------------------------------------------------------------------------------------------------------------- | ---- | - | ---- | -
|Millions of euros                                                                                                               | 2004 |   | 2003 |  
|                                                                                                                                |      |   |      |  
|Net operating loss carry
      forwards                                                                                         | 96   |   | 169  |  
|Minimum pension liability                                                                                                       | 354  |   | 361  |  
|Provisions                                                                                                                      | 352  |   | 320  |  
|Intangible assets                                                                                                               | 46   |   | 57   |  
|                                                                                                                                |      |   |      |  
|Total gross deferred
      tax assets                                                                                           | 848  |   | 907  |  
|Less valuation allowance                                                                                                        | (53  | ) | (40  | )
|                                                                                                                                |      |   |      |  
|Net deferred tax assets                                                                                                         | 795  |   | 867  |  
|                                                                                                                                |      |   |      |  
|Property, plant and equipment                                                                                                   | (109 | ) | (172 | )
|Overfunding at pension
      funds                                                                                              | (132 | ) | (119 | )
|Other                                                                                                                           | (328 | ) | (376 | )
|                                                                                                                                |      |   |      |  
|Total deferred tax liabilities                                                                                                  | (569 | ) | (667 | )
|                                                                                                                                |      |   |      |  
|Net deferred tax asset                                                                                                          | 226  |   | 200  |  
|                                                                                                                                |      |   |      |  
|                                                                                                                                |      |   |      |  
|Classification
      of deferred tax assets and liabilities, which is determined at a fiscal
      entity level, is as follows: |     
|                                                                                                                                |     
|                                                                                                                                |      |   |      |  
|Millions of euros                                                                                                               | 2004 |   | 2003 |  
|                                                                                                                                |      |   |      |  
|Deferred tax assets                                                                                                             | 351  |   | 429  |  
|Deferred tax assets for
      minimum pension liability                                                                         | 354  |   | 361  |  
|Deferred tax provisions                                                                                                         | (479 | ) | (590 | )
|                                                                                                                                |      |   |      |  
|Net deferred taxes                                                                                                              | 226  |   | 200  |  
|                                                                                                                                |      |   |      |  

The valuation allowance for
  deferred tax assets as of December 31, 2004 and 2003, was EUR 53 million and
  EUR 40 million, respectively. The net change in the valuation allowance for
  the years ended December 31, 2004, 2003, and 2002, was an increase of EUR 13
  million, a decrease of EUR 25 million, and an increase of EUR 20 million, respectively,
  due to changed assessments of realizability of deferred tax assets.

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170

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

In assessing the valuation of deferred tax
    assets, management considers whether it is more likely than not that these
    deferred tax assets will be realized. The ultimate realization of deferred
    tax assets is dependent upon the generation of future taxable income during
    the periods in which these temporary differences become deductible. Management
    considers the scheduled reversal of deferred tax liabilities, projected future
    taxable income, and tax planning strategies in making this assessment. Based
    upon the level of historical taxable income and projections for future taxable
    income over the periods which the deferred tax assets are deductible, management
    believes it is more likely than not that the Company will realize the benefits
    of these deductible differences, net of the existing valuation allowances
    at December 31, 2004. The amount of the deferred tax assets considered realizable,
    however, could be reduced in the near term if future estimates of projected
    taxable income during the carry forward period are lower.

No taxes have been provided for approximately
    EUR 1.4 billion of unremitted earnings of certain foreign subsidiaries as
    of December 31, 2004 (2003: EUR 1.5 billion). The remittance of these amounts
    would not lead to an income tax charge in the Netherlands and, in case of
    nonrefundable withholding taxes, part of these withholding taxes would be
    available for tax credits.

|(21) | Earnings from Nonconsolidated Companies
|---- | ---------------------------------------

Earnings from nonconsolidated companies in
    2004 include a net tax charge of EUR 3 million (2003: EUR 4 million credit;
    2002: EUR 1 million credit).

2004 earnings include after-tax charges of
    EUR 29 million, mainly related to antitrust charges recognized at Flexsys
    and special charges for Acordis.

2003 earnings include net charges of EUR 29
    million predominantly related to restructuring and antitrust charges recognized
    at Flexsys. 2002 earnings include similar charges for an after-tax amount
    of EUR 8 million recognized for Acordis.

|(22) | Application of Generally Accepted
          Accounting Principles in the United States of America
|---- | -------------------------------------------------------------------------------------------------

The accounting principles followed in the preparation
    of the consolidated financial statements (NL GAAP) differ in some respects
    from those generally accepted in the United States of America (US GAAP).

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171

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

The reconciliation of net
    income is as follows:

|                                                                  |                                           |   |      |   |      |  
|----------------------------------------------------------------- | ----------------------------------------- | - | ---- | - | ---- | -
|                                                                  | For
          the year ended December 31, |  
|Millions of euros                                                 | 2004                                      |   | 2003 |   | 2002 |  
|                                                                  |                                           |   |      |   |      |  
|Net income in accordance
        with NL GAAP                     | 856                                       |   | 602  |   | 818  |  
|Adjustments to reported
          income:                         |                                           |   |      |   |      |  
|Reversal NL GAAP amortization
        of goodwill (a)             | 28                                        |   | 25   |   | 19   |  
|Goodwill write-downs
        (b)                                  | (92                                       | ) | (4   | ) | (17  | )
|Joint venture (c)                                                 | (6                                        | ) | 6    |   | 3    |  
|Stock compensation (d)                                            | (1                                        | ) | (14  | ) | 21   |  
|Development costs (e)                                             |                                          |   | (3   | ) | 1    |  
|Restructuring provisions
        (f)                              | 5                                         |   | 4    |   | (19  | )
|Employee share plan
        (g)                                   | (1                                        | ) | (4   | ) | (3   | )
|Derivatives cumulative
        effect (h)                         |                                           |   |      |   |      |  
|Derivatives effect 2004/2003/2002
        (h)                     | 35                                        |   | (2   | ) | 54   |  
|Pfizer contract on asenapine
        (i)                          | 31                                        |   | (88  | ) |      |  
|Income taxes (j)                                                  | (23                                       | ) | 37   |   | (17  | )
|                                                                  |                                           |   |      |   |      |  
|Net income / (loss)
        in accordance with US GAAP            | 832                                       |   | 559  |   | 860  |  
|                                                                  |                                           |   |      |   |      |  
|Per share and ADS
          in accordance with US GAAP, in euros: |                                           |   |      |   |      |  
|Basic earnings / (loss)
        per share/ADS                     | 2.91                                      |   | 2.17 |   | 3.01 |  
|Diluted earnings / (loss)
        per share/ADS                   | 2.90                                      |   | 2.16 |   | 3.00 |  
|                                                                  |                                           |   |      |   |      |  
|                                                                  |                                           |   |      |   |      |  

Comprehensive income is as
    follows:

|                                                          |                                                                                                |     |      |      |       |        |  
|--------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --- | ---- | ---- | ----- | ------ | -
|Millions
          of euros                               | 2004                                                                                           |     | 2003 |      | 2002  |       
|                                                          |                                                                                                |     |      |      |       |        |  
|Net income
        / (loss) in accordance with US GAAP    | 832                                                                                            |     | 559  |      | 860   |       
|Other comprehensive
        income / (loss), net of taxes |                                                                                                |     |      |      |       |       
|–                                                         | Foreign
        currency translation adjustments                                               | (78 | )    | (314 | )     | (348   | )
|–                                                         | Excess
        of minimum liability over unrecognized prior service cost, before
        taxes | 72  |      | 436  |       | (1,555 | )
|–                                                         | Tax
        on excess of minimum liability over unrecognized prior service
        cost        | (7  | )1   | (142 | )     | 477    |  
|                                                          |                                                                                                |     |      |      |       |        |  
|Comprehensive
        income / (loss)                     | 819                                                                                            |     | 539  |      | (566) |       
|                                                          |                                                                                                |     |      |      |       |        |  
|                                                          |                                                                                                |     |      |      |       |        |  

|1 | Includes the effect
        of the changes in enacted tax rate.
|- | ---------------------------------------------------------------

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172

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

The accumulated other comprehensive
    income / (loss) balances are as follows:

|                                     |             |   |            |   |               |  
|------------------------------------ | ----------- | - | ---------- | - | ------------- | -
|                                     | Foreign     |   | Minimum    |   | Accumulated   |  
|                                     | currency    |   | pension    |   | other         |  
|                                     | translation |   | liability  |   | comprehensive |  
|Millions of euros                    | adjustments |   | adjustment |   | income        |  
|                                     |             |   |            |   |               |  
|Balance at December
        31, 2001 | (404        | ) | (40        | ) | (444          | )
|2002 change                          | (348        | ) | (1,078     | ) | (1,426        | )
|                                     |             |   |            |   |               |  
|Balance at December
        31, 2002 | (752        | ) | (1,118     | ) | (1,870        | )
|2003 change                          | (314        | ) | 294        | * | (20           | )
|                                     |             |   |            |   |               |  
|Balance at December
        31, 2003 | (1,066      | ) | (824       | ) | (1,890        | )
|2004 change                          | (78         | ) | 65         |   | (13           | )
|                                     |             |   |            |   |               |  
|Balance at December
        31, 2004 | (1,144      | ) | (759       | ) | (1,903        | )
|                                     |             |   |            |   |               |  
|                                     |             |   |            |   |               |  

|*Includes
      minimum pension liability for nonconsolidated companies of EUR 8 million.
|-----------------------------------------------------------------------------------------

The reconciliation of shareholders equity
    is as follows:

|                                                        |                        |   |       |  
|------------------------------------------------------- | ---------------------- | - | ----- | -
|                                                        | December
          31, |  
|Millions of euros                                       | 2004                   |   | 2003  |  
|                                                        |                        |   |       |  
|Shareholders equity
        in accordance with NL GAAP | 3,036                  |   | 2,502 |  
|Adjustments to reported
          shareholders equity: |                        |   |       |  
|Goodwill (a)                                            | 3,064                  |   | 3,163 |  
|Joint venture (c)                                       | 5                      |   | 12    |  
|Stock-compensation (d)                                  | (15                    | ) | (14   | )
|Development costs (e)                                   | (8                     | ) | (8    | )
|Restructuring provisions
        (f)                    | 17                     |   | 12    |  
|Employee share plan
        (g)                         |                       |   | (4)   |  
|Derivatives (h)                                         | 95                     |   | 60    |  
|Pfizer contract on asenapine
        (i)                | (57                    | ) | (88   | )
|Income taxes (j)                                        | (10                    | ) | 16    |  
|                                                        |                        |   |       |  
|Shareholders equity
        in accordance with US GAAP | 6,127                  |   | 5,651 |  
|                                                        |                        |   |       |  

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173

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

An analysis of the change
    of shareholders' equity under US GAAP is as follows:

|                                                                                                   |       |   |       |   |        |  
|-------------------------------------------------------------------------------------------------- | ----- | - | ----- | - | ------ | -
|Millions of euros                                                                                  | 2004  |   | 2003  |   | 2002   |  
|                                                                                                   |       |   |       |   |        |  
|Balance at beginning
        of year                                                               | 5,651 |   | 5,455 |   | 6,362  |  
|Net income / (loss)                                                                                | 832   |   | 559   |   | 860    |  
|Dividends paid                                                                                     | (343  | ) | (343  | ) | (343   | )
|Issuance of common shares                                                                          |       |   |       |   | 5      |  
|Purchase of common shares,
        net                                                             |       |   |       |   | (3     | )
|Foreign currency translation
        adjustments                                                   | (78   | ) | (314  | ) | (348   | )
|Excess of minimum liability
        over unrecognized prior service costs, 
   net of income taxes | 65    |   | 294   |   | (1,078 | )
|                                                                                                   |       |   |       |   |        |  
|Balance at end of year                                                                             | 6,127 |   | 5,651 |   | 5,455  |  
|                                                                                                   |       |   |       |   |        |  

The differences, which have
    an effect on net income and/or shareholders' equity, are as follows:

|(a) | For NL GAAP purposes,
        until 1999 goodwill was charged directly to shareholders' equity. Since
        2000, goodwill is capitalized and amortized over its estimated useful
        life not exceeding 20 years.                                                                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|    | For US GAAP, until 2001
        goodwill was capitalized and amortized over its estimated useful life
        not exceeding 40 years.                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company adopted
        the provisions of SFAS No. 141 as of July 1, 2001, and of SFAS No. 142
        effective January 1, 2002. As of January 1, 2002, goodwill is determined
        to have an indefinite useful life, and therefore no longer amortized.
        Annually goodwill is tested for impairment in accordance with the provisions
        of SFAS No. 142. 
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|    | As a consequence, the
        unamortized goodwill balances per January 1, 2002, of pre 2000 acquisitions
        are to be capitalized for US GAAP and are no longer amortized. Starting
        in 2002, the NL GAAP amortization of goodwill related to post 1999 acquisitions
        has to be reversed for US GAAP. For 2004 this was an amount of EUR 28
        million.
|    |                                                                                                                                                                                                                                                                                                                                                                                 
|    | The impairment test
        in accordance with the provisions of SFAS No. 142 did not result in additional
        charges in the Companys statement of income, except for the items
        mentioned under caption (b).                                                                                                                                                      

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174

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

An analysis of the change in the reconciling
    item for goodwill under US GAAP during 2004, 2003 and 2002 is as follows:

|                                               |      
|---------------------------------------------- | -----
|Millions of euros                              |      
|                                               |      
|Balance at December 31,
      2001             | 3,476
|Reversal of NL GAAP amortization               | 19   
|Additional write-downs
      (see (b) below)   | (17  
|Foreign currency translation
      adjustments | (168 
|                                               |      
|Balance at December 31,
      2002             | 3,310
|Reversal of NL GAAP amortization               | 25   
|Additional write-downs
      (see (b) below)   | (4   
|Foreign currency translation
      adjustments | (168 
|                                               |      
|Balance at December 31,
      2003             | 3,163
|Reversal of NL GAAP amortization               | 28   
|Additional write-downs
      (see (b) below)   | (92  
|Foreign currency translation
      adjustments | (35  
|                                               |      
|Balance at December 31,
      2004             | 3,064
|                                               |      

|(b) | The Company
        annually tests the US GAAP goodwill for impairment. This adjustment also
        includes the write-down of any remaining unamortized goodwill associated
        with businesses disposed of during the year. For 2004, the write down
        concerns the unamortized goodwill of Catalysts, Phosphorus Chemicals,
        and Coating Resins. For 2003, the write down concerns the unamortized
        goodwill of Impregnated Papers. For 2002 the write down concerns the
        unamortized goodwill of a part of the Akcros business, which was divested
        in April 2002.                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(c) | During
        1995, the Company transferred its rubber chemicals activities into a
        50-50 joint venture,
      Flexsys, with Solutia Inc. Under NL GAAP the carrying value of the investment
      at December 31, 2004, was EUR 92 million and under US GAAP EUR 97 million,
      (at December 31, 2003: EUR 100 million and EUR 112 million, respectively).
      The higher carrying value under US GAAP is principally related to the goodwill
      associated with the Akzo Nobel businesses transferred into the joint venture.
      Such goodwill had been previously charged directly to equity for NL GAAP
      purposes.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(d) | In accordance
        with NL GAAP, stock compensation costs are charged to equity upon exercise
        of the stock appreciation rights. In accordance with APB 25, compensation
        costs, including the change in the liability for the difference between
        the exercise and the market price, should be recognized as a charge/credit
        against income. The compensation expenses for 2004 amounted to a charge
        of EUR 1 million (2003: EUR 14 million).                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | No pro
        forma information is required, as the compensation expenses calculated
        pursuant to the provisions of FAS 123 are the same as those for APB 25,
        due to the cash settlement feature of the Companys stock option
        scheme.                                                                                                                                                                                                                                                                                                                                                                                

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175

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

|(e) | In accordance with NL
        GAAP development costs are to be capitalized and amortized, if certain
        conditions have been met. US GAAP does not allow capitalization and amortization
        of development costs. For US GAAP purposes, these costs have to be expensed
        as incurred. During 2004, the Company capitalized additional development
        costs for EUR 3 million and recognized an amortization charge of EUR
        3 million for NL GAAP purposes. For 2003 EUR 5 million of development
        cost were capitalized, and EUR 3 million amortization charge was recognized
        for NL GAAP purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(f) | In accordance with
      NL GAAP a provision for restructuring is recognized at the moment a formal
      plan is approved, the plan identifies all significant actions to be taken
      to complete the plan, the period of time necessary to complete the plan
      indicates that significant changes to the plan are not likely, and in case
      of termination benefits, communication to the people involved an communication
      of the benefit arrangement is communicated before balance sheet date. For
      US GAAP purposes SFAS 146Accounting for Costs Associated with Exit or
      Disposal Activities became effective for exit or disposal activities
      that are initiated after December 31, 2002, which means that a provision
      for exit cost can only be recognized if the goods or services for the exit
      program have been delivered. As a consequence, provisions for exit costs
      of EUR 17 million (EUR 11 million after taxes) recognized in accordance
      with NL GAAP could not be recognized. In 2003, EUR 21 million (EUR 14 million
      after taxes) were not recognized for US GAAP purposes since the goods or
      services for the exit program had not been delivered.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In 2004 EUR 9 million
      (EUR 6 million after tax) were recognized under NL GAAP for provisions for
      termination benefits, which already were recognized for US GAAP in 2003
      as part of ongoing plans in accordance with SFAS 88 Employers Accounting
      for Settlements and Curtailments of Defined Benefit Pension Plans and for
      Termination Benefits. In 2004 there were no ongoing plans which did
      not qualify for NL GAAP which had to be recognized for US GAAP purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(g) | In accordance with NL
        GAAP, the value of the shares granted under the Akzo Nobel Employee Share
        Plan 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.
        This standard is effective for rights granted from 2002 onwards. No charge
        was recognized for the shares granted under the Akzo Nobel Employee Share
        Plan in 2001. In accordance with US GAAP the fair value of these shares
        granted in 2001 (i.e. the share price at the date of grant) also has
        to be recognized as a charge against income over the vesting period of
        the grant. For 2002, the additional charge amounted to EUR 3 million
        (EUR 2 million after taxes). For 2003, the additional charge amounted
        to EUR 4 million (EUR 3 million after taxes). For 2004, the additional
        charge amounted to EUR 1 million (EUR 3 million after taxes).                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(h) | In accordance with NL
        GAAP, results on foreign currency forward hedging contracts (determined
        at year-end exchange rates) are recognized in income to offset the foreign
        exchange differences on the related hedged items. Exchange differences
        on anticipatory hedges of firm commitments regarding sales and purchases
        are deferred on the balance sheet until the hedged transactions have
        been reflected in the accounts. For interest swap contracts, interest
        is accrued in the statement of income as part of interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Statement of Financial
        Accounting Standards No. 133,Accounting
        for Derivative Instruments(SFAS 133),
        as amended, was adopted by Akzo Nobel in 2001. This statement establishes
        accounting and reporting standards for derivative instruments, including
        certain derivative instruments embedded in other contracts (collectively
        referred to as derivatives), and for hedging activities. The Statement
        requires every derivative instrument be recorded in the balance sheet
        as either an asset or liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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176

NOTES TO THE CONSOLIDATED
      FINANCIAL STATEMENTS OF AKZO NOBEL

| | measured at its fair
        value. SFAS 133 requires that changes in the derivatives fair value be
        recognized currently in earnings unless specific hedge accounting criteria
        are met. The Company does not designate its derivatives for hedge accounting
        in accordance with US GAAP. Accordingly, changes in fair value of derivative
        instruments are recognized currently in earnings.                                                                                                                                              
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The cumulative effect
        for US GAAP purposes at January 1, 2001 of the implementation of SFAS
        133 on net income was a gain of EUR 3 million for the foreign currency
        forward contracts and a gain of EUR 15 million for interest-rate swap
        contracts, as well as a loss of EUR 1 million for the interest rate cap
        contract and a loss of EUR 2 million relating to certain futures contracts
        to purchase electricity, all figures before taxes. The net after-tax
        cumulative effect was a gain of EUR 10 million.

The developments for the years ended December
    31, 2004, 2003, and 2002 were as follows:

|                                     |                                       |  
|------------------------------------ | ------------------------------------- | -
|                                     | For
      the year ended December 31, |  
|Millions of euros;
      gain/(loss) | 2004                                  |  
|                                     |                                      
|Foreign currency contracts           | 3                                     |  
|Interest rate currency
      swaps   | 8                                     |  
|Interest rate swap contracts         | 28                                    |  
|Interest rate cap contract           |                                       |  
|Forward rate agreements              |                                      |  
|Petroleum options                    | (2                                    | )
|Petroleum swaps                      |                                      |  
|Gas futures                          | (2                                    | )
|Electricity futures                  |                                       |  
|                                     |                                      
|Total                                | 35                                    |  
|                                     |                                      
|Net effect after taxes               | 24                                    |  
|                                     |                                      

|(i) | In December 2003, the
        Company concluded a contract with Pfizer on the codevelopment and comarketing
        of asenapine. As a result thereof, the Company received an initial payment
        from Pfizer of EUR 88 million, which in accordance with the contract
        and the spirit thereof is a nonrefundable reimbursement of the expenses
        incurred by Akzo Nobel in prior years for the development of the asenapine
        related know-how so far. In accordance with NL GAAP, such payment was
        recognized as revenue immediately.                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | In accordance with
        US GAAP revenue recognition rules for nonrefundable upfront fees as part
        of a contract whereby continuing involvement is required from the receiving
        company, this payment cannot be recognized as revenue upon receipt, but
        has to be deferred and recognized in future as the Company provides the
        continuing services required under the agreement, which for this payment
        is considered to be the development period 20042007. The payment
        is released against income pro rata to the expected development costs
        to be incurred over the period 20042007. As a result, for US GAAP
        purposes in 2004 EUR 31 million was recognized as income.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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177

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

|(j) | Represents the income tax effects of
      the aforementioned adjustments.                                                                                                                                                                                                                                                                                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(k) | The Company holds minority stakes (mostly
        49 or 50 percent) in certain companies, which have been fully consolidated
        into the consolidated financial statements of Akzo Nobel, taking into
        account the minority interest of the other shareholders. This treatment
        is allowed for NL GAAP purposes, as these companies are considered so-called
    group companies. This mainly concerns the following companies:

| | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | International Paint (Gulf) LLC                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------
| | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | International Paint Saudi Arabia Ltd           
| | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Akzo Nobel Inda SA de CV.                      
| | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Akzo Nobel Chang Cheng (Vietnam) Ltd           
| | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Warmte/Kracht Centrale Akzo Nobel Center V.O.F.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | It should be noted that
        in 2004 the interest in several other Chang Cheng companies was increased
    from 50% to 67%.                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The effect of the difference
        with US GAAPwhich requires accounting under the equity method of
    such interestson shareholders equity and net income is nil.                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | If these interests had been
        treated as nonconsolidated companies on a US GAAP basis the Consolidated
        Statement of Income for the year ended December 31, 2004, would have
        shown a decrease in net sales of EUR 38 million, in operating income
        of EUR 5 million, in earnings of consolidated companies less income taxes
        of EUR 4 million, and in minority interest of EUR 2 million. On the other
        hand earnings from nonconsolidated companies would have increased by
    EUR 2 million.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Consolidated Statement
        of Income for the year ended December 31, 2003, would have shown a decrease
        in net sales of EUR 120 million, in operating income of EUR 24 million,
        in earnings of consolidated companies less income taxes of EUR 20 million,
        and in minority interest of EUR 10 million. On the other hand earnings
    from nonconsolidated companies would have increased by EUR 10 million.                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The Consolidated Statement
        of Income for the year ended December 31, 2002, would have shown a decrease
        in net sales of EUR 122 million, in operating income of EUR 21 million,
        in earnings of consolidated companies less income taxes of EUR 16 million,
        and in minority interest of EUR 8 million. On the other hand earnings
    from nonconsolidated companies would have increased by EUR 8 million.                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The major effects on the
        Consolidated Balance Sheet as at December 31, 2004, would have been a
        decrease in current assets of EUR 23 million, in property, plant and
        equipment of EUR 10 million, in short-term liabilities of EUR 18 million,
    in long-term borrowings of EUR 1 million, and in minority interest      of EUR 7 million. On the other hand, nonconsolidated
    companies would have increased by EUR 7 million.                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The major effects on the
        Consolidated Balance Sheet as at December 31, 2003, would have been a
        decrease in current assets of EUR 67 million, in property, plant and
        equipment of EUR 17 million, in short-term liabilities of EUR 36 million,
        and in minority interest of EUR 27 million, and an increase in long-term
        borrowings of EUR 6 million. On the other hand, nonconsolidated companies
    would have increased by EUR 27 million.                                                      

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178

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

|(l) | Until early 2004, the Company held
          a 50 percent interest in a joint venture with Sanofi-Synthélabo,
          which was included in the consolidated financial statements of Akzo
          Nobel on a proportional basis, which is allowed for NL GAAP purposes.
          The effect of the difference with US GAAPwhich requires accounting
          as nonconsolidated companies of such interestson shareholders equity
    and net income is nil.                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | As the this joint venture ceased to
          exist early in 2004, there no longer is a difference between the accounting
          treatment for NL GAAP and US GAAP, which would impact the Consolidated
          Statement of Income for the year ended December 31, 2004, and the Consolidated
    Balance Sheet as at December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | If Sanofi-Synthélabo had been
          treated as nonconsolidated company on a US GAAP basis the Consolidated
          Statement of Income for the year ended December 31, 2003 would have
          shown an increase in operating income of EUR 24 million, and in earnings
          of consolidated companies less income taxes of EUR 18 million. On the
          other hand earnings of nonconsolidated companies would have decreased
    by EUR 18 million.                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Consolidated Statement of Income
          for the year ended December 31, 2002 would have shown an increase in
          operating income of EUR 49 million, and in earnings of consolidated
          companies less income taxes of EUR 31 million. On the other hand earnings
    of nonconsolidated companies would have decreased by EUR 31 million.                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The major effects on the Consolidated
          Balance Sheet as at December 31, 2003, would have been a decrease in
          deferred tax assets of EUR 32 million, in current assets of EUR 22
          million, in long-term borrowings of EUR 31 million and in short term
          liabilities of EUR 13 million. Equity in nonconsolidated companies
    would have increased by EUR 10 million.                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(m) | In November 2002, the
      FASB issued interpretation No. 45, Guarantors Accounting and Disclosure
      Requirements for Guarantees, including Indirect Guarantees of Indebtedness
      to Others. There
      are agreements to provide additional consideration in a business combination
      to the seller if contractually specified conditions related to the acquired
      entity are achieved. At December 31, 2004, we had recognized contingent
      liabilities for estimated payments amounting to EUR 5 million, which are
      included in the obligations under long-term non-cancelable operating leases
      and other commitments, as reported above under Commitments. The total maximum
      exposure amounted to EUR 21 million.

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179

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AKZO NOBEL

|(n) | During 2004, the Company divested the
        Catalysts, Phosphorus Chemicals, and Coatings Resins activities. For
        NL GAAP these divested activities do not qualify for treatment as discontinued
        operation. For US GAAP, however, these activities do qualify as discontinued
    operation. The disclosures as prescribed in SFAS 144 are as follows.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                        

|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|--------------------------------- | ------------------------------- | - | ------ |  | ---- | - | ------ |  | ----- | - | ------ | 
|                                  | For the year ended December 31, |  
|Millions of euros; gain/(loss)    | 2004                            |   | 2003   |  | 2002 |  
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|Net sales                         |                                 |   |        |  |      |   |        |  |       |   |        | 
|Continued operations              |                                 |   | 12,063 |  |      |   | 12,115 |  |       |   | 13,008 | 
|Discontinued operations           |                                 |   | 617    |  |      |   | 816    |  |       |   | 872    | 
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|Total                             |                                 |   | 12,680 |  |      |   | 12,931 |  |       |   | 13,880 | 
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|Income from continuing operations |                                 |   |        |  |      |   |        |  |       |   |        | 
|before income taxes               | 624                             |   |        |  | 710  |   |        |  | 1,140 |   |        | 
|Income taxes                      | (251                            | ) |        |  | (195 | ) |        |  | (333  | ) |        | 
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|Income from continuing operations |                                 |   | 373    |  |      |   | 515    |  |       |   | 807    | 
|Income from discontinued          |                                 |   |        |  |      |   |        |  |       |   |        | 
|operations (including gains on    | 531                             |   |        |  | 66   |   |        |  | 84    |   |        | 
|disposal)                         |                                 |   |        |  |      |   |        |  |       |   |        | 
|Income taxes                      | (72                             | ) |        |  | (22  | ) |        |  | (31   | ) |        | 
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|Income from discontinued          |                                 |   |        |  |      |   |        |  |       |   |        | 
|operations                        |                                 |   | 459    |  |      |   | 44     |  |       |   | 53     | 
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|Net income                        |                                 |   | 832    |  |      |   | 559    |  |       |   | 860    | 
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 
|Earnings from continuing          |                                 |   |        |  |      |   |        |  |       |   |        | 
|operations per share              |                                 |   |        |  |      |   |        |  |       |   |        | 
| Basic                           |                                 |   | 1.31   |  |      |   | 1.80   |  |       |   | 2.82   | 
| Diluted                         |                                 |   | 1.30   |  |      |   | 1.80   |  |       |   | 2.82   | 
|Earnings from discontinued        |                                 |   |        |  |      |   |        |  |       |   |        | 
|operations per share              |                                 |   |        |  |      |   |        |  |       |   |        | 
| Basic                           |                                 |   | 1.61   |  |      |   | 0.15   |  |       |   | 0.19   | 
| Diluted                         |                                 |   | 1.60   |  |      |   | 0.15   |  |       |   | 0.19   | 
|                                  |                                 |   |        |  |      |   |        |  |       |   |        | 

The reconciliation of the elements of the
earnings per share computation is as follows:

|                                      |             |  |             |  |             | 
|------------------------------------- | ----------- |  | ----------- |  | ----------- | 
|                                      | 2004        |  | 2003        |  | 2002        | 
|                                      |             |  |             |  |             | 
|Shares for basic earnings per share   | 285,745,587 |  | 285,691,957 |  | 285,827,092 | 
|Effect of dilutive securities         | 660,310     |  | 721,016     |  | 504,113     | 
|                                      |             |  |             |  |             | 
|Shares for diluted earnings per share | 286,405,897 |  | 286,412,973 |  | 286,331,205 | 
|                                      |             |  |             |  |             | 

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180

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      OF AKZO NOBEL

(23) Supplemental Cash Flow Disclosures

|                               |      |  |      |  |      | 
|------------------------------ | ---- |  | ---- |  | ---- | 
|Millions of euros              | 2004 |  | 2003 |  | 2002 | 
|                               |      |  |      |  |      | 
|Cash paid during the year for: |      |  |      |  |      | 
|Interest                       | 139  |  | 159  |  | 208  | 
|Income taxes                   | 217  |  | 124  |  | 231  | 
|                               |      |  |      |  |      | 



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181

Schedule IIVALUATION AND QUALIFYING ACCOUNTS

|                               |                                                |  |                                             |  |                                                              |   |            |   |       |   |                                          | 
|------------------------------ | ---------------------------------------------- |  | ------------------------------------------- |  | ------------------------------------------------------------ | - | ---------- | - | ----- | - | ---------------------------------------- | 
|Millions of euros              | Balance at
        beginning
        of period |  | Additions
        charged to
        income |  | Foreign
        currency
        translation
        results |   | Deductions |   | Other | * | Balance
        at end of
        period | 
|                               |                                                |  |                                             |  |                                                              |   |            |   |       |   |                                          | 
|Reserves for doubtful accounts |                                                |  |                                             |  |                                                              |   |            |   |       |   |                                         
|Year ended December 31, 2002   | 180                                            |  | 43                                          |  | (17                                                          | ) | (25        | ) | 1     |   | 182                                      | 
|Year ended December 31, 2003   | 182                                            |  | 24                                          |  | (9                                                           | ) | (31        | ) |      |   | 166                                      | 
|Year ended December 31, 2004   | 166                                            |  | 33                                          |  | (1                                                           | ) | (29        | ) | (4    | ) | 165                                      | 
|                               |                                                |  |                                             |  |                                                              |   |            |   |       |   |                                          | 

|* | Other is principally due to divestments.
|- | ----------------------------------------

Other reserves of a similar nature, such as
    for warranties, are not material to the consolidated financial statements.

Item
  19.EXHIBITS

|(a) | Financial statements filed
        as a part of this annual report. (See index to financial statements and
        schedule set forth in Item 18.)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                   
|(b) | Exhibits filed as part of
        this annual report                                                                                              

| |      |                                                                                                                                                                                                  
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.   | Articles of Association of Akzo Nobel
        N.V. (incorporated by reference from the Form 6-K furnished to the U.S.
        Securities and Exchange Commission on July 25, 2001).              
| | 4.c  | Service contract of Board of Management
        of Akzo Nobel N.V. (incorporated by reference from the Form 20-F filed
        with the U.S. Securities and Exchange Commission on May 31, 2002.)
| | 8.   | Subsidiaries.                                                                                                                                                                                    
| | 12.a | Rule 13(a)  14(a) Certification
        for Akzo Nobel CEO                                                                                                                                      
| | 12.b | Rule 13(a)  14(a) Certification
        for Akzo Nobel CFO                                                                                                                                      
| | 13.a | Rule 13(a)  14(a) Certification
        for Akzo Nobel CEO                                                                                                                                      
| | 13.b | Rule 13(a)  14(a) Certification
        for Akzo Nobel CFO                                                                                                                                      
| | 15.a | Consent of Independent Auditors                                                                                                                                                                  

The amount of long-term debt securities of
    Akzo Nobel authorized under any individual instrument does not exceed 10
    percent of the total assets of Akzo Nobel and its subsidiaries on a consolidated
    basis. Akzo Nobel agrees to furnish copies of any or all such instruments
    to the Securities and Exchange Commission upon request.

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182

SIGNATURES

The registrant hereby certifies that it meets
    all of the requirements for filing on Form 20-F and that it has duly caused
    and authorized the undersigned to sign this annual report on its behalf.

Akzo Nobel N.V.



|By    | : | /s/ G.J. Wijers                     | By    | : | /s/ R.J. Frohn         
|----- | - | ----------------------------------- | ----- | - | -----------------------
|Name  | : | G.J. Wijers                         | Name  | : | R.J. Frohn             
|Title | : | Chairman of the Board of Management | Title | : | Chief Financial Officer
|      |   |                                     |       |   |                        

Dated: June 16, 2005



EXHIBIT
  INDEX

|(a) | Financial statements filed
        as a part of this annual report. (See index to financial statements and
        schedule set forth in Item 18.)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Exhibits filed as part of
        this annual report                                                                                              

| |      |                                                                                                                                                                                              
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.   | Articles of Association
      of Akzo Nobel N.V. (incorporated by reference from the Form 6-K                                                                                                
| |      | furnished to the U.S.
      Securities and Exchange Commission on July 25, 2001).                                                                                                            
| | 4.c  | Service contract of Board
      of Management of Akzo Nobel N.V. (incorporated by reference from the Form
      20-F filed with the U.S. Securities and Exchange Commission on May 31, 2002.)
| | 8.   | Subsidiaries.                                                                                                                                                                                
| | 12.a | Rule
      13(a)  14(a) Certification for Akzo Nobel CEO                                                                                                                                    
| | 12.b | Rule
      13(a)  14(a) Certification for Akzo Nobel CFO                                                                                                                                    
| | 13.a | Rule
      13(a)  14(a) Certification for Akzo Nobel CEO                                                                                                                                    
| | 13.b | Rule
      13(a)  14(a) Certification for Akzo Nobel CFO                                                                                                                                    
| | 15.a | Consent
      of Independent Auditors                                                                                                                                                        

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