Welcome and thank you for standing by. At this time, all participants are in listen-only mode. After the presentation, we will conduct a question-and-answer session. To ask a question, please press star and then one. This call is being recorded. If you have any objections, you may disconnect at this point. Now, I will turn the meeting over to your host, Lloyd Midwinter. You may begin.
Thank you. Hello and welcome to Akzo Nobel investor update for Q4 2019. I'm Lloyd Midwinter, Director, Investor Relations and Communications. Today, our CEO, Thierry Vanlancker, and CFO, Maarten de Vries, will guide you through our results. We will refer to a presentation which you can follow on screen and download from our website, akzonobel.com. A replay of this call will also be made available. There will be an opportunity to ask questions after the presentation. For additional information, please contact Investor Relations. Before we start, I would like to remind you about the disclaimer at the back of this presentation. Please note this applies to the conference call and answers to your questions. I now hand over to Thierry, who will start on slide four of the presentation.
Thank you, Lloyd. Hello and a warm welcome to everyone on the call. Our fourth quarter 2019 results show continued progress with adjusted operating income up 23% to be at EUR 223 million despite softer end market demands. Return on sales, excluding unallocated costs, increased to 11% versus 9% last year, driven by continued margin management and cost-saving programs. We are clearly making progress towards delivering the EUR 200 million cost savings planned for 2019 and 2020, with EUR 80 million delivered in 2019. During the year, we kickstarted a EUR 50 million investment in our U.S. wood coatings business, completed the acquisition of Mapaero to strengthen our global position in aerospace coatings and expanded our Paint the Future innovation ecosystem.
In addition, we delivered on our commitment by returning EUR 6.5 billion to our shareholders following the sale of Specialty Chemicals, and we announced a new EUR 500 million share buyback program in October 2019, which is due to be completed in the first half of this year. We also proposed a final dividend of EUR 1.49 per share, representing an increase in dividend per share of 5.6%. Some key financials for the fourth quarter and the full year 2019 are shown on slide five. During Q4, ROS, excluding unallocated costs, increased to 11%, up from 9% in Q4 2018. ROS also increased from 10.6% to 12% for the full year, driven by lower costs and ongoing margin management. Free cash flow was up 47% in Q4, while free cash flow, excluding pension top-up payments and pension prefunding, was up by 179% for the full year.
Revenue was flat overall in 2019, while adjusted operating income was up 24% and adjusted EPS from continuing operations was 62% higher. Our performance improvement accelerated during 2019, as shown on slide six. If you look at the trends during the second half of the recent years, the return on sales, excluding unallocated costs, increased from 9.2% in 2017 to 10.6% in 2018 and 12.5% for 2019. This clearly demonstrates our strong momentum going into 2020, delivering towards our Winning together: 15 by 20 strategy. For the full year 2020, our ambition is to be in the range of 14.5%-15.5% for ROS, excluding unallocated costs, assuming no significant market disruptions. Let's now turn to some of the key trends on slide seven. During the quarter, we experienced an uncertain macroeconomic environment with softer end market demand, including the automotive industry.
The impact of foreign exchange moderated and raw materials had a favorable impact during the quarter. The downturn in automotive OEM continued to impact our automotive and Specialty Coatings business, while demand for Marine and Protective Coatings remained relatively stable. Powder Coatings continued its good momentum, although was also impacted somewhat by the slowdown in the automotive industry. Demand for Industrial Coatings remains subdued, with strong demand for packaging offset by continued slowdown in Wood Coatings, particularly in North America and parts of Asia, as well as a general softness in our industrial end markets. For Decorative Paints, we saw continued strong momentum in EMEA, offset by lower volumes in Asia due to general softness in some of our end markets.
In China, volumes in the premium segment grew, but volumes were lower for wood care. I would also like to address the current situation in China due to the recent outbreak of the coronavirus. First of all, I would like to emphasize the safety and well-being of our more than 5,000 employees in that region is a key priority. Given our substantial business in Asia, the coronavirus may create a shift in demand from the first quarter to later in the year. Although, at this point, we do not expect the full year to be impacted in a significant way. We are obviously clearly monitoring the situation on a day-to-day basis. In conclusion, we are not expecting much help from our external markets. Demand trends are expected to differ per region and segment, with generally softer end market demand in an uncertain macroeconomic environment. Moving to slide number eight.
We are laser-focused on delivering our Winning together: 15 by 20 strategy to ensure that we continue to be recognized as the reference in the paints and coatings industry. We delivered 10% cumulative price increases from 2017 to 2019, which is a really big step up for our organization, and we are now moving towards ongoing margin management. We continue to implement Global Business Services with 38 transitions completed in 2019, allowing for further efficiency gains in the future. Our ERP integration is also steadily moving forward, with 16 integrations completed in 2019. Our transformation delivered a further EUR 10 million cost savings in the quarter, which means we have now delivered EUR 80 million out of the EUR 200 million savings planned for 2019 and 2020. The amount of cost savings will differ and continue to differ per quarter due to the phasing of transformation costs and benefits.
As we indicated before, it is not going to be a straight line of cost savings per quarter in 2020. I'm proud to say that we received also, despite all the transformation work ongoing, the Top Employer awards in five of our major countries, including Brazil, China, and the U.K., which underlines our ongoing commitment to create a high-performing culture and becoming the reference in the industry. With that, I'll hand it over to Maarten, who will run through the financial results in more detail as of slide number 10.
Yeah. Thank you, Thierry, and good morning, everybody on the call. A quick recap of our financial results for the fourth quarter is shown on slide 10. Revenue was 3% lower, with positive price mix of 1% more than offset by 4% lower volumes due to softer end market demand, including the automotive industry. Adjusted operating income was up 23% at EUR 223 million versus EUR 181 million last year, driven by lower cost and strong margin management. Return on sales, excluding unallocated cost, increased to 11% versus 9% in the same period last year. Operating income included negative identified items of EUR 50 million, mainly related to transformation costs. Moving to slide 11. For the full year 2019, total revenue was flat, while price mix was up 4% overall, mainly driven by pricing initiatives.
Acquisitions contributed 1%, while volumes were 5% lower due to our value over volume strategy and softer end market demand. Return on sales, excluding unallocated cost, increased to 12% from 10.6% in 2018. Identified items were EUR 150 million for the full year 2019, mainly related to planned transformation cost and non-cash impairments, partly offset by a gain on disposal following network optimization, which was EUR 54 million. Moving to slide 12, which shows our momentum to deliver improved return on investment in 2020. Despite lower growth assumptions and the impact of IFRS 16, we've made progress on ROI at 17.2% for 2019. Adjusting for the impact of IFRS 16, ROI for 2019 would have been 17.8% for the full year. With the momentum in return on sales, our ambition is to deliver an ROI greater than 20% for 2020. Slide 13 shows quarterly trends in volume and price mix.
We've delivered cumulative price mix increases of 10% during 2018 and 2019, and now moving towards ongoing margin management with roughly 1%-2% annual price increases. Continued softness in some of our key end markets, including the automotive industry, resulted in lower volumes of 4%, while price mix was up 1% after 9% higher price mix in the fourth quarter of 2018. Based on peer announcements, we believe these volumes declines reflect the current market dynamics. Slide 14 shows the development of adjusted operating income during the fourth quarter. Foreign exchange rate had a minimal effect on the fourth quarter. Positive price mix delivered EUR 30 million, mainly as a result of price increases earlier in the year, offset by lower volumes. The effect of raw material and other variable costs turned favorable during the fourth quarter and delivered EUR 42 million.
Continuous improvement offset wage and other fixed cost inflation, which together with our transformation plans, delivered a total of EUR 10 million net cost savings. Net cost savings for the fourth quarter were affected by a number of significant ERP integrations in key regions and phasing of people leaving the organization at the end of December. Overall, we are on track delivering the EUR 200 million savings for 2020. The fourth quarter results for Decorative Paints are summarized on slide 15. Revenue was 2% lower with 4% lower volumes offset by 2% price mix. Adjusted operating income increased to EUR 87 million , up 67% versus last year. Positive price mix and lower cost more than offset lower volumes, resulting in return on sales up significantly at 9.9% versus 5.8% last year. This is a phenomenal increase of more than 400 basis points.
Strong momentum continued in EMEA with improved performance, including for France and the U.K. In China, volumes grew in the premium segment, while volumes were lower for the wood care segment. We also experienced lower order pattern ahead of Chinese New Year. Revenue was up 1% for South America and 10% in constant currencies, mainly driven by positive price mix effects and further market penetration. Turning now to Performance Coatings on slide 16. Volumes were 4% lower, mainly as a result of continued weakness in some of our industrial end markets and a slowdown in the automotive industry. Price mix was flat and revenue was 3% lower. Automotive and specialty coatings was particularly impacted by reduced demand from the automotive industry, while demand for aerospace coatings remained solid. As mentioned, momentum for Powder Coatings continued to be positive, although somewhat impacted by lower demand from the automotive industry.
Demand for Marine and Protective Coatings remained relatively stable, while we continued our measures focused on restructuring and rightsizing the business. Profitability increased for the Industrial Coatings business and demand for packaging coatings continued to be strong, while demand for wood coatings remained subdued. A focus on cost savings and margin management offset lower volumes and delivered a return on sales up at 11.7% versus 10.9% last year. Adjusted operating income was up 4% at EUR 159 million. Now turning to slide 17. Profits from continuing operations increased to EUR 80 million in the fourth quarter versus EUR 45 million last year, and adjusted EPS for continuing operations was 62% higher at EUR 3.10 for the full year. Adjusted earnings per share was impacted by fewer shares following the share consolidation earlier during the year, as well as, of course, the ongoing share buyback program. Moving on to slide 18.
Net cash from operating activities resulted in an inflow of EUR 454 million during the fourth quarter 2019 versus EUR 319 million in 2018. This increase is mainly driven by higher EBITDA for the period. Pension pre-funding for the full year 2019 has been included in net cash from operating activities, whereas in the first quarter of 2019, when the payment was made, this was included in the net cash from investing activities. We continue to invest in the business with capital expenditures totaling EUR 214 million for the full year, within our expected range of EUR 200 million-EUR 250 million. At the end of the year, net debt was at EUR 0.8 billion versus EUR -5.9 billion at year-end 2018, mainly driven by the return of the proceeds from the sale of Specialty Chemicals.
We target a leverage ratio of 1 x- 2 x net debt EBITDA by the end of 2020 and commit to retain a strong investment-grade credit rating. Moving now to slide 19. We propose a final dividend of EUR 1.49 per share, that is post-consolidation, obviously, which would equal a total 2019 dividend of EUR 1.90. This represents an increase in dividend per share of 5.6%. Our dividend policy remains stable to rising, and our dividend is paid in cash. Now I hand back to Thierry for some concluding remarks on slide 21.
Thank you, Maarten. In conclusion, our fourth quarter 2019 results show continued strong progress towards our strategy, with adjusting operating income 23% higher and return on sales excluding unallocated costs up at 11% versus 9% last year. We have continued to invest in our business, including a EUR 50 million investment in our U.S. wood coatings business, the acquisition of aerospace coating company, Mapaero, and our Paint the Future innovation ecosystem. We delivered on our commitment by returning EUR 6.5 billion to our shareholders following the sale of Specialty Chemicals. We also announced a new EUR 500 million additional share buyback program in October 2019, which is due to be completed in the first half of this year. Our team in China continues to do a phenomenal job and has gained again the top employer status for the seventh year in a row.
We were also recognized in many other key countries like the U.K., the U.S., Netherlands, Brazil, and some of these countries for the very first time as being a top employer. That is of key importance for us, as the management team can thump their chests all day long about the achievements, but the real driving force behind AkzoNobel's step up has been our dedicated and diverse colleagues around the world. They are doing the heavy lifting on all fronts. Together, we remain fully focused on delivering our Winning together: 15 by 20 strategy during the year ahead. Finally, turning to slide 22. As mentioned earlier, the coronavirus in China is expected to impact the first quarter results, although at this time we do not expect the full year to be impacted in a significant way.
More generally, we are delivering towards our Winning together: 15 by 20 strategy and continue creating a fit-for-purpose organization for a focused paints and coatings company, contributing to the achievement of our 2020 ambition. Demand trends differ per region and segment in an uncertain macroeconomic environment. Raw material costs are expected to have a moderately favorable impact for the first half of 2020. Continued margin management and cost-saving programs are in place to address the current challenges. We continue executing our transformation, incurring one-off costs to deliver the previously announced EUR 200 million cost savings. We target a leverage ratio of 1x-2x net debt over EBITDA by the end of 2020 and commit to retain a strong investment-grade credit rating. With that, I now hand over to Lloyd for information about upcoming events in the Q&A session.
Thank you, Thierry. Before we start the Q&A session, I would like to draw your attention to some upcoming events shown on slide 23. Tomorrow, we will host our Investor Update 2020 and Beyond. The event takes place in London, and a live webcast will be available via our website. On March 10th, we will publish our annual report for 2019. We will publish our report for the first quarter of 2020 on April 22nd, and that will be followed immediately by the annual general meeting of shareholders on April 23rd. This concludes the presentation for today, and we would be happy to take your questions. Please state your name and company when asking a question, and limit the number of questions to two per person so others can participate. Operator, please start the Q&A session.
Thank you, speaker. We will now begin the question -and -answer session. If you would like to ask a question, please press star one. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To cancel your request, please press star two. One moment, please, for the first question. Hello, our first question is coming from Alex Stewart. Your line is now open.
Quickly about the parameters that inform your lower and upper bound for the margin. What is it that you're most worried about for the year ahead? Any discussion of that would be fantastic. Thank you.
Yep. All right, Alex, I think we only got the latter part of your question. I think you asked around what was driving the upper and lower boundaries of the targets we gave them for 2020. Well, as you noticed, not surprisingly, the midpoint of the target we gave is pretty much spot on about the number we've been talking about for two years. As we are in the year, I think we start having more visibility around scenarios on how our cost is going to evolve, how our raw materials are going to flow to our inventory, how our markets are doing, and how our margins are. If we went through scenarios on what is kind of the worst scenario, what is kind of the most optimistic scenario, that gives a range. That's it.
In fact, it's kind of a confirmation, I would say, of what we've been saying over the last three years. Again, to answer specifically, it's really around how our variable costs are moving to our inventory, which is in paints and coatings, always a whole trip on how things with semi-finished products goes through. Secondly, our cost programs and the implementations that we're doing, then just how the markets are developing. If we do the whole calculations, that's the bracket that we come in. Does that answer your question, Alex?
If I could just expand it. Which of those stops you sleeping the most, if you look to the next 12 months? Which are you most worried about?
Frankly, not that much. I would say, as we said before, we actually now come out of a three-year period where in our markets we haven't had much tailwind from markets. There's nothing really. I'm looking here at Maarten, who looks pretty well rested. If I look at it, I would say it's probably more what is the macroeconomic environment doing, and can we respond fast enough internally on measures we have to take? In fact, that is probably kind of the up and down around the 15% that you have to see around this is some tailwind, this is some headwind, and that's kind of the maximum of the doubt. I'm looking at Maarten here.
Alex, indeed, the external dynamics and the external uncertainty drives this mostly. Again, I think the most important is this is a self-help story. It's really driven by executing on all our transformation initiatives. I think as we came now in the year, it's fair to give kind of the benefit we are steering in for 2020 now.
That's great. Thank you so much.
Thanks, Alex.
Thank you. Our next question is coming from Tony Jones. Your line is now open.
Good morning, everybody. Thanks for taking my questions. I've got two. Firstly, on raw materials, good favorable impact in this quarter. That sort of EUR 40 million gain, my sort of very simple maths implied it was about a 4% cost deflation. Is that a reasonable run rate as we go through Q1, Q2? Because if I look at some of your raw materials, the market prices have been collapsing in the last couple of months. Then secondly, just a bit more strategic on the portfolio. Are there any businesses or brands which haven't performed quite as well as you expected in the last year's difficult trading? Equally, if we're nearing the bottom of the demand cycle, how are you thinking about bigger, more strategic M&A? Thank you.
Tony, thanks for your questions. Maybe first on raw material. What we've seen in 2019, that in the first half, we still had the run up coming from raw material pricing, which was basically at its highest point at the end of 2018. That was a run up still of EUR 110 million. In Q3, it was more or less flat. In the fourth quarter, we've seen indeed, just the favorable effect of EUR 42 million versus a very high point at the end of 2018. Going forward, given the current prices, we would see a moderately favorable impact in the first half. That's based on current pricing. It's hard to predict for the second half because a lot of stuff is going on in the markets. Overall, we see pluses and minuses in our raw material basket.
Again, from where we're standing today, it would be a moderately favorable impact for the first half.
Tony, Well, first of all, checking whether that answers your question before I dive into your second one.
Yes, that's fine. I know it's hard to call these things six months out, but yeah, that's great. Thanks.
Yeah. All right. The second thing was on what we see as a performance of the impact on our brands and our market positions, and then I think you had a question on how that does to M&A. I would say there shouldn't be any confusion on our value for volume strategy. That as far as we can see it, our brands, the products we wanted to continue to be very present in the market with, have in fact, been doing well. Calling out the EMEA market, for example, our Deco business is doing extremely well. That has been despite all the pricing moves we had and despite having already a very strong position in the market.
If I call out China as a good example, yes, we did walk away from a lot of putties and a lot of the, I would say, the almost generic white wall paint buckets. Dulux, our premium brand, has been growing in the third quarter and has been growing in the fourth quarter, which has been quite a positive development. Powder Coatings, Interpon, the 2019 was a relatively flattish view on our Powder Coatings, but that is hiding the fact that a key market, automotive, was really down. Being flat there means that all the other segments have frankly been growing much faster than GDP. In aerospace as an example, we have a strong position, but we all know about at least one big customer who is a bit in turbulence there, so that doesn't necessarily help.
Also there, instead of fast growth, it's been relatively flat despite some of these more market dynamics. I think our brands are doing extremely well. We have done a lot of product introductions in many of our segments, and I think that's going to continue to happen. In that sense, I'm not that negative. We haven't had much help over the last two and a half year period, Brexit, hyperinflation in some of our key markets, you name it. We have had all of the biblical things happening in some of our segments. Coming back to our M&A, obviously, if you look at the numbers, I think Akzo Nobel has and will continue to turn into a very high cash-generating organization.
We have the luxury of having very little debt, and if you put your spreadsheets, which you're probably doing, you see there is cash available to do things. We've been on record to say either this goes back to our shareholders, or we do M&A with it. We have a pretty healthy M&A pipeline. There, you have to look at what is the right moment, what is the right valuation that you can hit there. We get the messages from key shareholders that we have deserved the right to do some serious M&A, but we will continue to be very disciplined and having a pocket calculator in the back of our hands to see what makes the most sense here in the value creation journey. By the way, Tony, to answer that, we still are doing a lot of work in the company.
The 15 by 20 is getting our company into shape on ERP systems, on processes, planning, all the way that we go in an organized way to the market. If you look at that, we can still keep ourselves pretty much busy with that in 2020 while we have other people, including some of us here around the table, looking at what should be the next move for the company. Does that answer your question?
Yes. Great detail. Thank you very much.
Thank you.
Thank you, Tony. Our next question is coming from Mutlu Gundogan. Your line is now open.
Yes, good morning. The first question is on pricing. We see you obviously benefiting from lower input prices. Just wondering what your outlook is on your pricing as you see the headline numbers come down. Do you think you will be able to maintain prices in 2020? Secondly, on your outlook, or actually on your volumes, I saw some statements on Bloomberg saying that you have not incorporated any volume growth. Looking at the last, what is it, eight quarters, we've seen volume declines. Do you think you can flatline in 2020, or should we also, again, be penciling in a year of volume declines? Thank you.
Well, let me maybe start and then also hand it over to Maarten. You've seen us indicating that for 2020, we do want to continue to expand our margin, but you will have noticed that we moved from the, I would say, let's get the prices up and almost as a one-dimensional direction to margin management, because there is going to be a dynamic on the raw. For us, it's all around having a variable margin, maintaining or expanding. That's the name of the game. In that sense, it is obviously pricing, but pricing is also with your input costs, because right now we feel our portfolio and the volumes that we sell are the right volumes for the vast majority of our businesses that we want to be present with in the market. That brings me to the point around volumes.
We don't expect the markets necessarily to grow very much. That's probably what you picked up from the press releases. Having said that, the value over volume, where we really consciously were shedding businesses that really had no future in our portfolio, that has gone much more to margin management and to basically optimize the value and then grow with the markets where we are right now. I don't know, Maarten, if you want to comment further.
Yeah. On your question on pricing, and we've said that earlier, so we moved to margin management, but it is good to say that we are executing on price increases during this first quarter. That's between 1% and 2%. That is also part of the pricing discipline we are implementing in the business to really increase prices on a yearly basis. That is ongoing and being executed. Indeed, as Thierry said, it is an ongoing margin management where we manage pricing vis-à-vis the input cost as well to step by step expand our margins.
Does that answer your question?
Definitely. Thank you very much.
Thank you.
Thank you. Our next question is coming from the line of Laurence Alexander. Your line is now open.
Questions. First, can you update us on your thinking about pension top up and restructuring cash outlays that would affect the cash bridge in 2020 and 2021? With respect to having the right to look at larger M&A, what do you view as the upper limit of the size of M&A that AkzoNobel could absorb without disrupting the current productivity measures and culture improvement program?
Yeah. Let me first pick up on your first question. With the pension top-ups behind us, basically we have done significant pension top-ups in 2019 and therefore de-risked the U.K. pension fund, and that went through our cash flow, and it was an amount of total EUR 642 million. Basically going forward, we will see only very minimal cash out on the pension funds. We have indicated that it is probably around EUR 10 million per year for the coming years. That is one, and that links to the comment Thierry earlier made that we basically moved to a highly cash generative business.
On the restructuring cost, we have announced by the end of 2018, kind of the second phase of our transformation program or restructuring program, which is a total of EUR 350 million, of which EUR 290 million in cash and EUR 60 million non-cash. For the coming year, I would say we still expect the remainder of that program, which probably sits in between EUR 100 million-EUR 150 million, and it depends a little bit on timing and execution, et cetera.
Laurence, assuming that that answers your question, let me go to the second part around the size of the M&A, et cetera. As you know, we're on debt. We're almost too healthy. We are cash generative. You know how our finances look like. It's probably easy to make a calculation of what the financial firepower would be.
I don't think that would be necessarily a big limit, therefore, for anything that we would wish to do. I think you put it spot on the question around is it wise given the culture of the transformation we do? You've seen us in some of the recent stories that were in our market. You've been, I think, being very disciplined because we're going through a transformation. We do believe there is still a lot of value creation in 2020 and beyond in the company. For us, it is a question of having our systems up and running, our ERP platforms in the place where they should be, and then just the way that we plan organized, because that would give a much bigger chance of success for doing value accretive M&A versus just becoming bigger and then frankly manage the internal chaos afterwards.
In that sense, since we feel there is still a lot of gas in the tank within the company, we keep our eyes and ears open for M&A. We don't feel like we're pretty limited on the financial side, but I think the organization looks in a very mature way around what do we have going right now, what has to be in place to make an acquisition not just a news item, but really something that creates significant value for our shareholders. That's why we are, as anybody, eager but very disciplined and realistic in what is the timing to do. We have our noses to the grindstone for most of the year, and here and there, some people are looking out on what are opportunities if they would fit. Does that answer your question?
Perfect. Thank you.
Thank you.
Thank you, Laurence. Our next question is coming from Christian Faitz. Your line is now open.
Yes. Good morning, Christian Faitz from Kepler Cheuvreux. First of all, on corona, can you give us a description of the current situation in China? I.e., what are your people on the ground saying? How disrupted the value chain really is on the back of the coronavirus, and what is demand currently doing in China? On that, can you please also remind us of the importance of China in terms of your group sales? The second question, can you please remind us of the split between your automotive OEM and repair exposure? As in the presentation, you mostly alluded to OEM weakness affecting your business. Why is there reduced demand from the automotive industry in your repair or refinish business? I assume it's mostly repair and refinish. Have, for example, insurance policies changed in any significant country? That's it.
All right. Okay. That's short questions with long answers, I think. On coronavirus impact for the Chinese market, we come out of a lower visibility period since the end of 2019 because the Chinese or Lunar New Year was a bit earlier. You have in the distribution sector some lower demand or some inventory management distributors. You get into January, where frankly, most people go on vacation holidays, and then you have the coronavirus outbreak at the same time. Our management team in China does a fantastic job having the whole team organized and having daily updates, et cetera. Just to give you an impact for us, last Friday, our first site opened up. We will have out of our 15 sites, we'll have probably 11 started up by the end of this week.
It's actually ongoing this week after the authority inspections, all the hygienic rules and the safeguards have to be in place. We think that by beginning of next week, all but one, which is our site in Wuhan itself, that all but one will be up and running. Our more than 5,000 employees we have in China are sound and safe, and their family seems to be okay. You go into the whole logistic issues of getting people from Chinese holiday, given all the quarantines back to work, et cetera. Just the sheer physical transport that has to happen. Now, for what we are concerned by the end of this week, we would be up and running, but that's not necessarily the end of the story. You have suppliers, you have customers, you have logistics companies.
It's still a little bit unclear on how successful are these going to start up or be able to supply. Hence, that's why we indicate, which I think is more than normal, an impact in the first quarter. Most of it, however, we believe will be a shift in demand to the rest of the year, at least in the current prognosis and scenario thinking for the coronavirus outbreak. That's on where we are. It's a daily monitoring, and I can only compliment our management team for how deep they are involved locally on managing the whole situation. The exposure for the company, you can read it also in our reports. It depends on it's about, looking here and doing the math in my numbers, but it's like a 10%, 12%, I think, of the overall input, but that's over a number of segments.
It is pretty significant. Again, I also want to point out for Deco, the first quarter is always the low quarter. In that sense, it doesn't come at the worst moment. It comes at a relatively, I would say, manageable, but I put that between quotes, manageable moment for the business. That's on the corona situation. Secondly, on the automotive element that you asked, we do have an exposure to automotive that sits to a large extent in our automotive and specialty business, which is the parts. We don't coat the metal, the typical OEM, but we do coat the bumpers, mirrors, et cetera. Anything that goes in there, and there we are quite a big player. That, of course, is impacted alongside with it, so that's it.
Secondly, in our Powder Coatings business, there is a significant exposure because there's quite some utilization of powder coatings in parts that go into cars. For us, the overall exposure to the automotive market is somewhere around a little bit less than 10% for the total company. That has been impacted, and that's what we're alluding to. We don't see any significant changes in our refinish business, if you felt we were alluding to that's not the case. Does that answer your question, Christian?
Yes. Thanks very much, Thierry.
Thank you.
Thank you, Christian. Our next question is coming from Matthew Yates. Your line is now open.
Hey, good morning. Just a couple, please. I think it was Laurence's question just around the restructuring. Can you just confirm that was EUR 100 million-EUR 150 million of cost to be taken in 2020, and how much of that is cash? The second question, again, a clarification, please. Have you lowered your return on capital or ROI target? I think it used to be 25%, and I think the presentation today is now saying 20%. Can you just clarify that for me?
On the restructuring question, I mentioned EUR 100 million -EUR 150 million still remaining. There is still a piece of non-cash in there, but the bigger part is obviously the cash part for 2020. On your question on ROI, that's indeed the case. The original ambition was a 25% ROI. Obviously, given the fact that we have a significantly lower growth rate from kind of the 2017 period onwards, this has the main impact on our ROI. On top of that, as I mentioned earlier, you have the implementation of IFRS 16, which has an impact of 0.6%, as well as recent M&A, which are also coming through. That's the reason why we've said, okay, given where we are and given the momentum we currently have, we will sit above the 20% ROI for 2020.
Understood. Thank you.
Thank you so much, Matthew. Our next question is coming from Peter Clark. Your line is now open.
Good morning, everyone. Thank you. Two questions. Coming back on the low growth environment we're seeing, very challenging. It raises the question again, on M&A, your comments on M&A have been pretty consistent. The pipeline pretty healthy, is the comment this time. Has there been absolutely no discernible change either in expectations for pricing or the number of opportunities you're looking at? I understand you're very focused internally, certainly comments from some of the competitors suggest that they're putting the foot down on this M&A side. In terms of the price mix story for 2020, are you confident that you're going to have at least a positive line on the Performance Coatings in 2020? Certainly not negative anyway, given this very challenging volume environment. Thank you.
Yeah. Thank you, Peter. Let me handle the first question and then Maarten can handle the price mix question. On M&A, let there not be any confusion. We are definitely looking actively at our M&A pipeline. In fact, I feel we have it over the last 18 months, much more in an organized shape or form, what do we want to go after in more detail and agreed upon across the organization. That's definitely front and center. Expectations on pricing. Well, now and then there is a deal in the industry somewhere around the world that kind of perks up the expectations from somebody who feels, well, they should get the same multiple. That is not exactly very helpful because that doesn't always is the right valuation. There we basically can wait it out a bit to get it back to real numbers.
We are definitely looking at it. Now, I would also would say that you probably have to look at then the size of the deals. You talked about some people saying to put their foot down. Okay. You have to look at what is then the real deals that actually come out and how accretive and how do they fit with the business. I think we've been pretty consistent. For us, if we do an M&A, it has to make sense for the company. It has to create value for the company and not just embellishing one of the lines in our P&L temporarily to look good. That's the discipline that we keep unfolding on that. I didn't want to have any confusion here.
We are actively looking at it, but we do compare it to what we have going in-house and how well we can create value versus other ways of your capital allocation that we do. Does that answer your question, Peter?
Yeah. Thank you.
All right. On the price mix?
On the pricing, as I said earlier, we are executing on our price increases, and that is 1%-2%, and that's basically being executed during this first quarter. That is basically for both the Deco side of the house and the coating side of the house. For both sides, we are executing on this, and we will see that through coming in our margins.
You're confident that you can have positive price mix and performance in 2020? That's the target?
Yes, correct. Yes, confirmed.
Thank you.
Thank you so much, Peter. Our next question is coming from the line of Gunther Zechmann. Your line is now open.
Hi. Good morning. Thanks for taking my question. It's on pricing and the margin management going into 2020. You alluded to the 1%-2% price increases, and it was 1% price and mix in the fourth quarter 2019. I appreciate that's on pretty steep comps, but you'll need to increase or come with new rounds of price increases in a deflating raw material cost environment. What gives you the confidence that those annualized 1%-2% price increases will come through in the market in 2020? How much of the guidance range is based on that? Thank you.
Yeah, good question, Gunther. Well, the confidence is actually based on the track record that we had because if we look, first of all, it's the 1% and 2% is actually margin that we want to drive there. That could be either by pricing up or it could be by the variable cost or the cost of the product down, but then you maintain it. There's two dynamics. I just want to make sure that that is clear. In fact, we are rolling out price increases in segments as we speak. Again, from the value over volume that we were doing, we have been gradually changing, and I think we've been pretty much commenting on that. We've been moving to margin management and margin improvement management.
We are rolling out price increase in certain segments because not all of the segments are in a cost-plus mentality. We have very strong brands. We have very strong market positions, technologies, so switching out some older technologies with new products, and we have quite some new product introductions we did. In that sense, we feel pretty comfortable, also with the signs that we've seen after announcing in some of these markets, the price changes that we will be able to implement that. Now to your question, how much is part of it? Well, it is part, of course, of the staircase to get from the 12.5% return on sales momentum we have in the second half of the year to the ambition that we gave for 2020. Again, there's other knobs to dial, but we feel relatively comfortable about that part.
That's very helpful. Thank you.
Thank you. Our next question is coming from the line of Laurent Favre. Your line is now open.
Yes. Good morning, all. The first question is on Deco. You've talked about the phenomenal performance in Q4. I was wondering to what extent you think there may have been some pre-buy from your large customers who are, I guess, trying to preempt an annual price increase as you just hinted at. Do you think that we may actually see some growth in European Deco, which would be a first in many years? Second question, I guess, for Maarten on the phasing of net cost savings. I think in the past from the 200, you were alluding to the fact that you would have an extra 30 falling into 2021. I'm wondering if you could now give us an update on this phasing, which used to be 100/130 for 2019, 2020, and 2021. What's the new phasing for 2020 and 2021? Thank you.
Yeah. Thank you, Laurent, for the first question. Yeah, I think we got a bit carried away with the phenomenal, but we are extremely proud of it on that business because it is a big driver. On pre-buy, I would say there's virtually nothing of pre-buy in there because that's what you can see on the volumes and the order patterns. I'm happy to say that the underlying is real underlying on what's happening. That's good. If you talk about growth, the market has actually been relatively positive in that sense, not buoyant, but it's been trending upwards for the first time in a long time. It's also clear, however, for us that in some of the key markets, we're also gaining some ground.
I think that's because of the strength of the brands, the consistency of the performance, but also hard work that our teams have done on getting their distribution partners chosen in the right way, the mix right, et cetera. I do believe that we can say that it's real, what you see.
Do you think that we could see?
Yeah.
Sorry, I was going to say-
Go ahead. Sorry.
do you think that we could see some positive impact on the post-Brexit U.K. market?
Yeah, my statements were not only for the U.K., by the way, the statements were much broader on what we see in our Deco market both in Europe, but also in other places of the world. We've commented on that even in those regions where it looks like on the top line, we walked away from lots of non-value adding volume, which is correct. You see our premium brands growing quite healthily. That, of course, is a completely and much more sustainable mix of our portfolio. What Brexit is concerned, I think the consumer confidence dip that we've seen over a period in the past two years, we've commented on that frankly, given our very strong market position, we haven't necessarily seen the negative of that.
I think that in the last four or five months in the U.K., the market has not been super, but I think our teams have really been doing heavy work on their distribution setup, the partners they chose, pricing, the product mix. In that sense, the U.K. for us continues to be a strong market. In fact, on any of the aspects, looks like 2020 is going to be a good year for Deco in the U.K. for us. Does that answer your question, Laurent?
Yes. Thank you, Thierry.
Maarten?
Yeah, on your question on the cost savings, the EUR 200 million program, EUR 80 million in 2019, EUR 120 million in 2020 of net savings. To your question, what is then the carryover in 2021? We do expect a carryover. In fact, the carryover we expect is EUR 40 million in 2021. That is just a logical phasing of how these cost savings will flow through the bottom line. Does that answer your question?
Absolutely. Phenomenal answer. Thank you.
Thank you, Laurent.
Thank you, Laurent. Our next question is coming from the line of Georgina Iwamoto. Your line is now open.
Hi. Good morning, Thierry. Good morning, Maarten. Thanks for taking my call.
Hi, Georgina.
Hi, Georgina.
Hello. My first question is, we first started talking about margin management at 3Q, and you've said today that you think your product mix is about right. I was just wondering if you can give us a feeling of how your directives to your sales force have changed in 2020 versus 2019. My second question was on volumes. It sounds like you're seeing a flattish to slightly negative volume outlook for 2020. First of all, is that fair? Secondly, is that what you anticipate Akzo will deliver and how do you expect to improve from the negative volumes we've seen from Akzo for the last two years? Thanks.
All right. Thanks, Georgina. Well, in our traditional standup comedian routine, I'll do the first question, and Maarten will do the second one. On the Yes, we started shifting from the third quarter to margin management and in the fourth quarter, and that will continue into 2020. That's indeed correct. What the directives that have changed to our teams, it's clear that in the unprecedented increase in raw materials and where the company was back in the end of 2017, the directive was a bit more nuanced, but was very close to get your prices up, look at the products, what is delivering, what is not delivering, and get your prices up. It was pretty much forced to get it to the organization.
As we get more clarity, as we get the new systems in, the new planning, we obviously have much more central visibility on margins by product. We are also now very much able to manage the margins. If to go on what the directives are, it's very much to our teams, and that depends a bit from business to business because they're not all in the same position, or in the same market environment. It's really very much around the margin management. It's much more playing around what is your input costs? What can you do in the market? Where do you have more leverage? What is the mix you have to offer, et cetera. I think we've developed a relatively good way of keeping transparency without cramping up our sales organization, because you have to have some flexibility there.
It's transparency that, well, mostly I think, our COO, Ruud Joosten and Maarten de Vries, who is a fanatic on all sorts of systems and KPIs, I mean, that allows us to really have now by product families, products, what is the true cost, what is the margin cost, and what is the position. It's a much more detailed approach, which I feel pretty good if we get the regular updates and I'll not give you the frequency, but it's more than monthly updates on where we are. Obviously, you can really monitor it pretty quickly. Does that answer your question, Georgina, on the first part?
Yes. That's very helpful. Thank you.
All right. Thanks. You want to get the follow-up?
Yeah, on the second part, I can only confirm your statement. Our view on 2020 for the volume side is flat to slightly negative. That's basically based on also what Thierry earlier said, based on all the actions we have taken on the current portfolio, and the volume view we see going forward.
Okay. That's great. Thank you very much, Maarten.
All right. Thanks, Georgina.
Thank you. Our next question is coming from the line of Mubasher Chaudhry. Your line is now open.
Hi. Thank you for taking my question. Just the one, please. You made a couple of comments around the M&A, that you're focusing on what you want to go after. I just wanted, I guess, have a little bit of color around that. Is there any particular part of the business that you feel is best suited for growth via M&A, or just a couple of comments around what you're particularly looking for within the different various operations of Akzo? Thank you.
A good question. I think probably more to follow also in the sessions we have tomorrow when we look a bit on what's the road ahead. I think it's been pretty consistent around for M&A, first of all, we did this portfolio work in high detail on what are the markets that we really want to push, where is the mandate between change the game on the more negative spectrum to the very positive spectrum that really let's invest and grow this as much as possible. I'm not sure if it would be wise to give you the whole list of what's on our wish list and what's not on our wish list.
I think it probably will become pretty clear when we talk about the segments where we feel we're doing quite well, and where we really have either a leading position or feel we should get to a leading position pretty soon. Those are the elements we look at. Having said that is balanced very much so with, okay, what would we want to buy? Where does it make sense? Then you still have to look at what is the potential collateral damage if you do this in the middle of a big transformation. That's one element. Secondly, is it really going to be significantly accretive to the value of the company? I think there, I feel pretty good that we look at the medium long term and not just the instant gratification of doing an M&A deal.
I don't know, Maarten, if you want to comment more on that?
No, I think this covers it all. Indeed, we will come back on this topic also tomorrow in the Investor Update when we talk about the portfolio and how we look at our portfolio and therefore also the link towards our M&A pipeline.
Thank you.
Does that answer your question?
Yes. Thank you.
Thank you.
Thank you. Our next question is coming from the line of Natalie Debroine. Your line is now open.
Hi. Good morning. Thank you for taking my questions. Two quick ones, actually, if I may. First, I'd like to go back to the margin management statement that you provided earlier on. I was wondering, given your value over volume strategy, could we expect some more bottom slicing going into 2020, or do you think this is broadly accomplished and that you're very satisfied with the portfolio that you currently have? Secondly, that would be on your unallocated cost, because, we have seen it was really low in 2019, but you keep on guiding for a range of EUR 140 million-EUR 180 million on a yearly basis going forward. What drove actually the lower corporate cost last year, and why do you maintain the higher guidance going forward?
Natalie, thank you. That nothing gets lost in translation, I'll do this in Flemish, although Lloyd is looking angrily at me. It's okay, we'll stick to English then. On the value over volume, that has indeed gone to margin management. I think the bottom slicing should be minimal. Having said that, in a very heterogeneous markets we operate in, there are still one or two segments where we feel there's still some stuff to be done. That should be order of magnitude less than what happened in the past, because that basically we are there, and again, it's famous last words.
Every time you have it, there's another segment where you say, "We made this a little sub-segment where we have to go." In the end, no, I think the volume and effect that was already clear in the fourth quarter, by the way, that our volume development should be very much in line with market. The big cleanup has basically happened there.
On unallocated costs, maybe first a remark on Q4. Originally, we mentioned that Q4 would be higher. In fact, that is also what we saw. Basically what we saw in Q4 is that some extra insurance costs and claims were offset by the benefit of a disposal. That made Q4 unallocated costs lower versus our original expectation. Towards this year, 2020, yes, we keep on guiding between EUR 140 million and EUR 180 million, and I think it's very important to mention that the brand license fee, so the income we get from our brand license from post the sale of Specialty Chemicals from Nouryon, has stopped by the end of 2019. That's an amount of roughly EUR 20 million. You need to add it on top of the current run rate.
Again, it's not completely linear during the quarter. We have always some pluses and minuses in this line. Two elements. One, 2020, EUR 140 million-EUR 180 million. Secondly, no brand license income anymore, which was in 2019 the case.
Did that answer your question, Natalie?
Yes, perfectly. Thank you.
Thank you. Our next question is coming from the line of Geoff Haire. Your line is now open.
Hi. Thank you very much. All my questions have been answered. Thank you.
All right. Thank you.
Okay. Thank you, Geoff. Our next question is coming from the line of Jaideep Pandya. Your line is now open.
Thank you. First question is, there's a lot more M&A theory today that you're talking about. I don't know whether you're just in the mood for it or not. I'm just going to ask you a direct, straight question is, are you interested in Axalta or not? Are you going to talk about big M&A tomorrow, or is this going to be the same old bolt-on stuff? That's point number one. Second question really is, you've done an amazing job with regards to pricing, margin management, and cash flow. If I'm being a cynic, Akzo Nobel, I don't remember, has had a big beat on a quarter for the past few quarters now. Your 14.5%-15.5% implies a decent gap versus consensus.
Do you think that 2020, you are going to finally see everything coming in place, i.e., no volume declines or rather limited volume declines, cost savings, pricing, raws, everything we need for this recipe to work in 2020? Thanks.
All right. Two questions there, Jaideep. Now I feel a little bit tricked here because all of the questions were around M&A, so because we answered them doesn't mean that we're thinking about M&A. That's one item. Just want to put it out there. Secondly, on your very specific questions, I think we've already answered that. Right now, we're not part in those discussions that Axalta, I don't even know where the discussions are standing. We've been pretty clear that this is a moment of time we're not engaging on that because of all the reasons we explained earlier. If people tomorrow come to the Investor Update session hoping to get all sorts of scoops on that front, that is not actually going to happen.
Now, who knows, there may be something developing three, four, five, six months from now, but right now, that is not something that occupies a lot of time around here, except indeed for the larger bolt-ons, et cetera, where we are definitely continuing to be very interested. That's maybe on the first question. The second thing, yes, it is correct that every quarter we had no big beats. Having said that, if you have a staircase that goes from 9% in 2017 to the 14.5%-15.5% three years later, and that gets into expectations, it is not easy to have big beats when you're actually climbing the mountain. Having said that, for 2020, we're operating right now at a return on sales versus excluding unallocated cost of 12.5%. That's kind of the performance of the company in the second half of the year.
Again, since you're climbing quarter-over-quarter, you have to take on what is the true performance. To get to the 14.5%-15.5% bracket, we've looked and feel that we have all the plans in place to get us firmly into that zone. Again, knowing that when we say that's going to have many of you probably change your consensus numbers, and therefore, it's going to be difficult to have a big beat versus what people are predicting what we're going to do. We do feel that except there is real macroeconomic stuff that are not to be foreseen, that we have the plans in place, both on the margin side, the cost side, to deliver on what we've been talking about over the last few years. Does that answer your question, Jaideep?
Yeah. No, no, it does. I was just putting the M&A question because you normally dodge these. Today you're just in a mood to give more details, so, yeah. Well done. Thanks a lot. Well done on that.
Okay. It was a test. Okay. Thank you.
Thank you. Our next question is coming from the line of Charlie Webb. Your line is now open.
Morning, gentlemen. Just a couple from me. First off, on aerospace. You touched on it, obviously, the challenges that Boeing face perhaps in 2020. Can you just remind us what your relative exposure is to Boeing versus Airbus? I remember I thought you were somewhat a little bit more exposed to Airbus, but just any kind of steer on your exposure there and what we should be thinking about for this year. Then just circling back to the raw material comments you gave around the kind of potential contribution in the first half from raw. Is it fair to say it would be within a similar order of magnitude to what you saw in Q4 on a quarterly basis in Q1 and Q2? Looking towards high double-digit million tailwind, or is it still too early to say?
Yeah, Charlie. Okay, let me handle the first aerospace question. If you look at our aerospace business, it's almost 50/50 between OEMs, so the construction of new planes, and 50% is maintenance, and then airlines who basically put livery on it, et cetera, so the changes that are happening. It's about 50%. If you go to the OEM, there is a bit of an impact on the OEM part, obviously, with Boeing. I'm not going to give you the exact numbers there, but we are the major supplier to all OEM aerospace manufacturers. We have an exposure, but also an upside if it's somewhere else in all the cases. Far, I think some of that headwind at one constructor indeed has shown up in a bit of a tailwind at the other one.
For example, it's clear that our Mapaero acquisition is running very well in France. That's doing extremely well in their performance. That's offsetting it to some extent. We do see a lower impact or a bit of a delay impact on maintenance, what it is concerned on the outside of the plane in the aftermarket, because, of course, with a lower supply of new planes, people try to get the extra margin, or at least don't take the time right now to embellish it. Having said that, it's going to have maybe some impact in our aerospace business, but the team has really come up with kind of a gap-closing element there, giving other constructors, giving other aftermarket opportunities. As we said, the Mapaero business obviously is performing over our expectations. In that sense, I think we'll have a limited impact.
Who knows, depending on when that gets back to normal, that may actually be something that might be a positive in 2020. That remains to be seen when and how that gets resolved in the end. Does that answer your question, Charlie, on the first question? I think no response must be yes.
Oh, sorry. Yes. Thank you very much. That's very helpful.
Okay. Maarten?
On the raw material, as I said earlier, in the fourth quarter of 2019, basically, we had a favorable effect of an impact of EUR 42 million versus the highest point of raw materials at the end of 2018. That, of course, was still flowing through our bottom line in the first half of 2019. That is the reason why we indicate for the first half of 2020 that we still will see a moderately favorable effect in terms of raw material. Our current assumption is based on what we see right now in terms of raw material, that we should see that flowing in the first half. On the second half, we still have limited visibility. Again, confirming moderately favorable raw material in the first half of 2020.
Okay. Thank you.
Great. Thank you. That concludes the end of our session today. Thank you for your questions, and your continued interest in Akzo Nobel. Remember, tomorrow we will host our Investor Update 2020 and Beyond. Look forward to seeing you at the event in London or feel free to watch online via our website.
Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.