Welcome and thank you for standing by. At this time, all participants will be on listen only mode until the question and answer session of today's conference. Today's conference is being recorded. If you have any objections, you may disconnect at this time. May I now introduce your speaker for today, Lloyd Midwinter.
Please go ahead.
Hello and welcome to the ExxonMobil Investor Update for Full Year and Q4 2017. I'm Lloyd Midwinter, Director, Investor Relations. Today, our CEO, Thierry Van Langer and CFO, Martin de Rieff, will guide you through our results. We will refer to a presentation, which you can follow on screen and download from our website, axonoval.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 the presentation. Please note this is also applicable to the conference call and answers to your questions. I'll now hand over to Thierry, who will start on Slide 3 of the presentation.
Thank you, Leit, and good morning to everyone and thank you for joining us on this call. 2017 for AkzoNobel was in many aspects an extraordinary year. But before we dive into all those elements and numbers, I want to compliment my team for making significant progress since we announced our strategy to create 2 focused high performance businesses, Paints and Coatings on the one hand and Specialty Chemicals on the other. The separation of specialty chemicals is fully on track for April 2018 as announced and as planned. And the business is now reported as discontinued operations.
I thought it was relevant to keep that in mind as we discuss the financial results later in the presentation. Firstly, I would however, like to highlight some of our achievements for the combined Paints and Coatings and Chemicals, the traditional arsenal belt, if I may say. We delivered another year of record EBIT and real organic growth, driven by higher volumes for both Paints and Coatings and Specialty Chemicals supplemented with 3 bolt on acquisitions. The Phase 1 of creating a fit for purpose paints and coatings organization announced in October 2017 is on track to achieve the €110,000,000 savings in 2018. Throughout 2017, we continue to act in line with our core principles.
We achieved top quartile safety performance, which is now truly world class and we were ranked number 1 again on the Dow Jones sustainability index for the chemical industry. And we also kept engaged on some of our social programs like Let's Color's world of connections in many cities around the world. On Slide 4, we see some key financial highlights. For the full year, the revenue was up 4% excluding currency and the EBIT was 2% higher, 2% higher than a record in 2016 and therefore a new record. The adjusted earnings per share was up 6% at €4.4 and the total dividend proposed for 2017 is up 52% to become €2.5 per share.
During the Q4, we made further progress. The revenue was up 6% excluding currencies and EBIT was 30% higher than last year. Adjusted earnings per share was up 39% at €0.92 We saw we continue delivering growth and increased profit. So let's turn to Slide number 5. During 2017, positive developments continued for negative pain, particularly in our Asia business, while challenging conditions in the marine and oil and gas industry impacted Performance Coatings.
We continued also to see higher demand for specialty chemicals in all our regions. Some headwinds persisted including higher raw material costs and adverse effects from foreign currencies increasing throughout the year. So we're capitalizing on positive market trends and dealing with specific headwinds. We also continue to invest in our sites as well as on bolt on acquisitions to support our organic growth. Some recent examples are shown here on Slide number 6.
During 2017, Specialty Chemicals announced or completed a further fourteen capacity expansions to support customer growth in all regions. On the Paints and Coatings side, we officially opened our new Ashington site in the UK, which is the world's most advanced and sustainable paint plant and a new center of production for Dulux in the UK. Having acquired BASF's Industrial Coatings business at the end of 2016, we made 3 further bolt on acquisitions during 2017, including Dizatec in France, Flexcreed in the UK and V PowderTech in Thailand. Turning to Slide number 7. The separation of Specialty Chemicals either via a private sale or a legal demerger remains fully on track for April 2018.
The internal separation of the Specialty Chemicals business is now complete. We are pursuing a dual track process to achieve a full separation and will return the vast majority of the proceeds to shareholders as indicated in April 2017. I will now hand over to Maarten, who will take you through the financials in more detail from Slide 9 onwards. Maarten?
Thank you, Thierry, and hello to everybody on the call. And I, of course, look forward to meeting you all. As Thierry mentioned, Specialty Chemicals is now reported as discontinued operations, so please keep this in mind as I bring you through the financial results. For the full year, Paints and Coatings revenue was up 4%, excluding currencies, driven by higher volumes and acquisitions. Pricemix was impacted by strong growth in emerging markets.
EBIT was 2% lower due to higher raw material costs, partly offset by increased selling prices, continuous improvements and cost control. Return on sales was 9.4% versus 9.8% in 2016. And the operating income includes identified items of €80,000,000 mainly related to the transformation of the Pain Thercoating organization. Turning to Slide 10. During the Q4, Paints and Coatings revenue was up 5% excluding currencies driven by higher volumes for Decorative Paints.
Price mix continued to be impacted by strong growth in emerging markets. And EBIT was up 19% with increased selling prices, continuous improvement in cost control, partly offset by higher raw material costs. Return on sales increased to 7.8% compared to 6.5% last year. Turning now to Decorative Paints on Slide 11. For the full year, volumes increased with 7% with growth in all regions.
Revenue was up 4%, excluding currencies. Pricemix was impacted by strong growth in emerging markets where average selling prices are lower than slower growing, more mature markets. Positions were up for Europe, Middle East and Africa with positive developments in most parts of the region, while the U. K. Was affected by lower consumer confidence.
At first currency effects were mostly related to the Palm Sterling. Revenue for Latin America grew 7% due to higher volumes across the region. Positive demand trends continued in Asia, and revenue was 8% higher driven by strong growth, particularly in China and up 14% excluding the currency impact. Significant growth was realized in both the premium and mass market segments. And Vietnam and Indonesia also continued to deliver good revenue growth.
Overall, EBIT was 2% lower due to adverse currency effects and steep increase in raw material costs, partly offset by continuous improvement in cost control. General sales was 9% compared to the 9.3% last year. Slide 12. During the Q4, decorative paints revenue was up 7% excluding currencies. Strong volume growth was partly offset by adverse currency and pricemix effects.
Positive developments continued, especially in China and growth improved in Latin America as well as other regions. Revenue for EMEA was up 3% excluding currencies, mainly due to higher volumes. Demand trends differ per country in the region and uncertainty continued in some markets, including the U. K. Latin America grew revenue by 14%, excluding currencies, driven by higher volumes.
And revenue for Asia increased with 9%, excluding currencies, with strong volume growth partly offset by the 1st mid price mix due to significant growth in the mass market. EBIT was up with 14% driven by volume growth, increased selling prices, continuous improvement and cost discipline, partly offset by adverse currencies and higher raw material costs. Return on sales finally increased to 6.3% versus 5.7% in 2016. Turning over now to Performance Coatings on Slide 13. Full year revenue for Performance Coatings was up 4%, excluding currencies, mainly due to the acquired Industrial Coatings business.
Volume growth in most segments and regions was more than offset by adverse conditions in the marine and oil and gas industries. Volume was increased for Specialty Coatings in most regions and revenue was up mainly due to positive pricemix effects. Automotive Coatings revenue grew for all regions. And volumes for Powder Coatings were also higher, while demand for Industrial Coatings differed per region and segments. EBIT was impacted by higher raw material cost and lower volumes, partly compensated by continuous improvement in cost control.
Return on sales was 11.6% versus 13.4% last year. For the Q4 and at Slide 14, Performance Coatings revenue was up 3% excluding currencies and volumes increased for Industrial and Power Coatings as well as Automotive and Specialty Coatings. However, adverse conditions persisted in the Marine oil and gas industries. Volumes in Marine Coatings continued to be affected by the slowdown of newbuild activity despite some recovery in all segments. Protective Coatings volumes decreased due to fewer oil and gas projects.
Improvement actions and cost control measures remain a key focus for us in this segment. Revenue for Automotive and Specialty Coatings was up 6%, excluding currencies, due to higher volumes. Industrial and Power Coatings revenue increased by 10%, excluding currencies due to the acquired Industrial Coatings business, volume growth and positive price and mix. 4th quarter EBIT was impacted by adverse currencies, higher raw material costs and lower volumes, partly compensated by a continuous improvement in cost control. So the overall return on sales was 9.7 compared to 10.9% in 2016.
Turning now to Slide 15, which shows the quarterly trends in volume and pricemix. Decorative Paints has continued to deliver strong volume growth, while bolt on acquisitions are contributing to growth for Performance Coatings. Price mix for Decorative Paints continued to be impacted by higher volumes in emerging markets where average selling prices are lower compared to more mature markets. Please note that these emerging markets are highly profitable and fast growing. We have been increasing selling prices during the second half of twenty seventeen and continue to increase selling prices to deal with the higher raw material costs.
Although these measures are expected to take several quarters before the necessary mitigating impact is fully realized. Slide 16, you see the main EBIT developments for 2017. Foreign currency turns from being a positive in the Q1 to increasing unfavorable during the year. There was minimal impact from the acquired Industrial Coatings business as we integrate the operations and production volume is being transferred to nearby ExxonMobil manufacturing facilities. Higher volumes for decorative paints contributed positively, partly offset by lower volumes for Performance Coatings due to ongoing weakness in marine, oil and gas.
Pricemix was impacted by strong growth for Decorative Paints in emerging markets where average selling prices are lower than slower growing more mature markets. Price mix was flat for Performance Coatings overall. Raw material prices were higher compared with the previous year. This represented a headwind of nearly €300,000,000 during 2017. We continue to implement increased selling prices to deal with the higher raw material costs.
Productivity improvements from our ALPS continuous improvement program achieved cost savings at a similar rate to previous years and more than offset wage and other fixed cost inflation. Strict cost control contributed positively to achieving the results. Turning now to Specialty Chemicals on Slide 17, which we have reported as discontinued operations. Full year revenue increased with 5%, excluding currencies due to positive volume developments and price mix effects. Volumes were up in all business units and regions.
Europe, Asia, Latin America showed particularly strong growth during the whole year, while North America suffered from most suffered most from supply chain disruptions such as the Hurricane Harvey. EBIT was up with 10% with higher volumes and cost control more than compensating for inflation and raw material price increases. And return on sales increased to 13.8% from 13.2% last year. Turning to Slide 18. During the Q4, Specialty Chemicals revenue was up with 9%, excluding currencies, due to positive volume developments and price mix effects.
Volumes were up in all regions and business units. In Europe, the business benefited from good demand and strong pricing, while Asia continued a strong year and Latin America ended with a very strong quarter. Positive price mix reflects the successful pass through of raw material price inflation. 4th quarter EBIT was 40% higher with favorable volumes, pricemix developments and cost control improving the results significantly versus last year. Return on sales increased to 13.4% compared to 10.1% in 2016.
Turning to Slide 19. Free cash flow for continuing and discontinued operations, as shown here, was impacted by changes in working capital, provisions and identified items. Turning to Slide 20. Cash management discipline, in particular operating working capital and capital expenditure continues to be an area of focus. We performed well compared to peers when it comes to operating working capital and our disciplined approach to capital expenditure continued in 2017 even while invested in growth.
We will maintain this discipline and seek to improve further going forward. Slide 21. During 2017, we paid a special cash dividend related to the separation of Specialty Chemicals. This impacted our net cash generation and net debt as shown here on this slide. Then on Slide 22, we outline the development of the pension deficit according to IAS 19.
The re measurement effects of liability experience and demographic assumption changes as well as top up payments of €275,000,000 in 2017 reduced the deficit. Pension plans of Specialty Chemicals had a deficit of €500,000,000 according to IAS 19 and are now classified as held for sale. This means that the pension plans related to the continuing operations have a surplus of 0 point €4,000,000,000 according to IAS 19. However, it is important to note these pension plans have an actuarial deficit and top up payments are based on this valuation methodology. Turning to Slide 23.
Our dividend policy is to pay a stable to rising dividend each year. The total dividend proposed for 2017 is up with 52% to €2.50 per share following a similar increase in the interim dividend and in line with our announcements in April last year. And the special cash dividend of €4 per share was also paid in December 2017 as advance proceeds related to the separation of Specialty Chemicals. I will now hand back to Thierry for some concluding remarks from Slide 25 onwards.
Thank you very much, Maarten. We are clearly on track to create 2 focused high performing businesses including the separation of specialty chemicals by April 2018. Axonnabell delivered in a very eventful year another year of record EBIT and real organic growth supplemented as I stated before by 3 bolt on acquisitions. And the Phase 1 of creating a fit for purpose paints and coatings organization as announced in October 2017 is on track to achieve €110,000,000 of savings in 2018. Now turning to our outlook shown on Slide 26.
The headwinds that we experienced during 2017, including much higher raw material costs and adverse effects from foreign currencies are projected to continue in 2018, especially during the start of the year. We anticipate positive ongoing developments for decorative paints in all regions, particularly in Asia. The trends for Performance Coatings are expected to be overall positive for most segments and regions, while still remaining challenging for marine and protective coatings. We continue to implement various measures to mitigate the current market challenges, including increased selling prices and a strict cost discipline. Our Winning together 15 by 20 strategy will increase and create a focused paint and coatings company to deliver on our 15% return on sales by 2020 guidance.
I will now hand it back over to Lloyd for information about upcoming events and the Q and A session. Lloyd?
Thanks, Derek. Before we start the Q and A session, I would like to draw your attention to some upcoming events shown on Slide 27. We will hold an Analyst Roundtable later today and the presentation taking place at 1400 CET will be made available by video webcast on our website at axnabell.com. We will publish our annual report next week on March 15 and announce our Q1 results for 2018 on April 24, shortly followed by our AGM on April 26. This concludes our formal presentation, and we will now be happy to take your questions.
Please limit your questions to a maximum of 2 so others can participate. Operator, please start the Q and A session.
Thank you. We will now begin the question and answer session. Our first question is from Tony Jones. Tony, your line is now open.
Good morning, everybody. Firstly, could you talk a little bit about price trends for 2018? So perhaps add in some detail in terms of how the negotiations with major customers are changing so you can do better than in last year? And then a question just on the EBIT bridge, Slide 16, the other box. Please could you split that up into the various buckets?
So how much cost was there from inflation, restructuring expenses? And also help us understand what that cost control component was? Thank you.
Well, thanks for the question. Maybe I should this is Thierry Malangra. I'll take the first half of the question. Then, Martha, maybe you will focus on the giving bridge and those were the questions. On pricing, I think it's fair to say that Hudson O'Gough has a track record of getting its own product prices aligned to the raw materials.
And we see no reason why that would not be the case going forward. In fact, we've seen in the Q4 prices going up and a lot of the announcements were done in the Q4 and in the Q1. So we're pretty, I think, optimistic on how we're going to correct that. Of course, if you ask the question for Paints and Coatings in general, because I think that's the segment that you're referring towards, it's a whole mixed bag on how those contracts are happening, going from store sales, which is almost instantaneous to negotiations with bigger customers where you often have a direct impact or quarterly impact or half year or even a yearly impact, hence the fact that January 1 was an important date for many of those. In general, I would say that the price increases are, of course always in a moment of tension with any customer, but that is clear that what the drivers are.
So we feel pretty encouraged by the progress we make. As we pointed out in previous calls during 2017, the biggest item was that it came somewhat unexpected for the whole industry during the Q1. And as a result, comparisons with the Q1 also in 2018 will be more challenging, because those were still the golden quarter versus then the hard work we had to do afterwards. But then in addition to that, it came unexpected and it actually came rolling in continuously. So even the price increases that were done were actually then too little in fact very quickly as the raw materials kept edging upwards.
So I hand it over to Maarten, maybe one indication of what you expect as we get our own prices up, what do we expect for raw materials? We do still expect increases in raw materials in 2,000 somewhere in the single digits. We have taken that into account in our pricing actions in the market with quite some intensity on how we get our prices up. So we expect that not to alleviate in the coming months. Martin, maybe on the EBIT?
Yes.
On the EBIT bridge, you're talking about €189,000,000 order buckets. So there is a net bucket indeed that includes wage inflation. And the wage inflation for Paints and Coatings is a little bit less than €100,000,000 So the gross number is you need to add that number. And then the saving buckets are basically across the board. This sits in G and A, sits in our selling expenses as well as our RD and I as well as and I think that's also an important bucket to mention, partly is also stock revaluation where the raw material prices are increasing.
It's, of course, also a positive effect in our stock revaluation coming in. And that amount is, of course, also a material amount as part of this bucket.
Next question is from Peter Clark. Your line is now open.
Yes, good morning. Thank you. I've got over 2 questions. On the face of the Paints and Coatings margin, the hit year on year obviously seems to be alleviating. But I do remember, of course, in Q4 'sixteen, you were taking some charges in that number, particularly, I think, cost cutting in Marine and Protective and in the Performance Coatings.
Just wondering if you could share what the number was in Q4 'sixteen of 1 offs because I don't think you had any restructuring in Q4 'seventeen. And then also in terms of the marine and protective, which obviously remains quite challenging, your competitors keep saying that as well. And obviously, the lead time on new ship orders feeding through into coatings, 15, 18 months. I'm just wondering, given the work you're doing, obviously, some alleviation potentially on raw materials as we go through 'eighteen. Did you expect this Or do you think it will remain challenging on the profit reported for the full year?
Or do you think it will remain challenging on the profit reported for the full year for exercise of course? Thank you.
Let me maybe address the second part of your question and then go to the one off question that you had. On Marine and Protective, Marine has its special dynamics and Protective has special dynamics. It's all kind of linked to oil and gas. What we see if you ask around Marine, we do see the shipbuilding finally stabilizing and actually trending slightly upwards, but I wouldn't oversell that too much. So I would say fortunately or maybe unfortunately, the time line for recovery that we have indicated earlier in 2017 is still holding.
So we said end of 2018, beginning of 2019 that we see some strength upwards because newbuilds is more than half of that segment. So we've done pretty strict cost control that's ongoing also in Protective Coatings. We put the 2 businesses also together because that allows much more synergies between those two businesses. The growth model was not the right approach for the time being. I think your questions are also around then what other steps do we take.
But as you know, we kind of are the big player in that all marine and protective space. Besides cost controls and also raw materials, a lot of our ALPs, our containers improvement is around efficiencies in raw materials that we do. We've also done the acquisition, for example, the Flexcreed acquisition is smack in the middle of our protective business. It's a new technology that gets us into other parts than oil and gas for our protective business. And then 2 pretty exciting new developments.
We have a Chartech product that really can now efficiently economically compete with the cementitious products, which is in fact the big player in there and that was always part of the market that was definitely to get into. And then what we've announced is LED technology for ship coatings, which is very sustainable but actually a breakthrough in that market. It's a combination of cost, it's a combination of being efficient oil or material, it's a combination also for continuing to look at different segments and innovations to grow the market. I think we're well positioned there as we will explain also this afternoon. We have other markets that are growing very fast.
These markets are finally stabilizing. And I think what we're focusing on is preparing the upturn, which we see more at the end of 2018, early 2019. And that I hope that addresses your first question before I hand it over to Martin for the one off item.
Yes. So on your question on the one offs, where I have basically looked at is the Q4 2016 1 offs versus the Q4 2017 1 offs. And in the total analysis of those one offs, basically these are equal. So there is not kind of one offs going through the EBIT line, which is impacting the EBIT in Q4 2017 versus 2016. On your specific question on the restructuring in Q4 2016, I don't know the exact details and I would like to maybe take that offline and then maybe we can follow-up to the IR team.
Okay. Thank you.
Next, we have Stephanie Moswell. Your line is now open.
Yes, thank you. I have 2 small questions, if I can. The first one is with regards to your other line. This morning you provided us with a split between the continued element in coatings and the discontinued element of specialty cans. Going forward, can we assume that that is a reasonable assumption in terms of the split of what we should expect in that other line?
And the second point is regards to the comments that you made earlier with regards to the pension. So on slide 22, we see that the continued operations are now in a surplus with regards to deficit. But you made the comment earlier that the coatings business cash top ups will be linked to the actuarial deficits. Can you give us some kind of steer or expectation in terms of what the cash outflows would be in the Standalone Coatings business post the separation?
Yes. So first, your question on the other line, that's a correct assumption. Although maybe let me make a specific remark on BA Other for Paints and Coatings. Q4 was relatively low. As you see, the full year Paints and Coatings was €115,000,000 and Q4 was €13,000,000 Going forward, I would more assume an overall BA order line, which sits somewhere in between what it was in 2016 20 17.
For reference, 2016 was, I believe, €188,000,000 and 2017 is €150,000,000 But as we have completely split it and the BAO line in Chemicals gives the right reference
as well.
On your pension question, so yes, we have a surplus from an accounting point of view for Paints and Coatings, however, still an actuarial deficit. So that means that we still continue to see top up payments. By the way, the triannual agreement will come up again mid this year. So
that is
a point of further negotiation. We also will as part of the separation, as part of the proceeds of the separation of chemicals, we will look how we can further derisk the pension funds going forward.
Next question is from Geoff Haire. Your line is now open.
Good morning. Thank you for
the opportunity to ask some questions. First of all, just on the 2020 targets that you've reaffirmed today. Can you give us some idea of what assumptions you're making for ForEx and raw materials relative to where they are today to basically reaffirm those targets? And then can you help us with understanding what the book value is for Specialty Chemicals, we can sort of work out what the tax base might be? Thank you.
All right. Maybe I'll let Martin handle the tax questions. That's the luxury I have with having him here around. And maybe go back to your first questions, which are the assumptions for 2020. I think for the raw materials and you all we will elaborate on that also this afternoon.
For the reconfirming of the 15% by 2020, we'll walk you through 4 value drivers, which each have 3 very specific projects, and in total, it's 12 projects to get to 15% by 2020. We have to answer your question maybe in a more general way, we have not assumed any windfalls in raw materials, although I think that goes in waves. So that is probably an upside in it. So what we've assumed is that what is the raw materials, what is the typical timing in the market for getting our product pricing up, which has been historically. And we see that with a couple of quarters delay, I mean, we basically can't offset those costs.
And those are the similar assumptions, which I think are reasonable assumptions in our plan. So that is for raw materials. For FX, those are more difficult one of the translation ones in there. I think the underlying one is about the FX situation we have today. But that may be completely spot on.
That may be completely optimistic or completely pessimistic. So we took basically today's situation as the implicit underlying assumption for that. So the other question around the tax, Martin?
Yes. So for our Specialty Chemicals separation, we follow a dual tax, either private sale or demerger. Both scenarios have tax consequences. But fair to say that the tax consequences for the private sale are higher versus the merger. But in the overall picture and in the overall valuation and the side by side analysis, we, of course, take that well into account to make sure that we have a proper consistent analysis of both scenarios.
But could you give us
a number for the book value for Specialty Chemicals?
No, I'm not in a position to give that number.
Next, we have Jeremy Rodenius.
Hi. It's Jeremy Rodenius from Bernstein. Thanks for taking the questions. First of all, on the 2020 guidance, at one point, when it was first announced, you were talking about exceeding market growth such that you would aspire to grow about 4% per annum to achieve that target. And just curious how you're thinking around that has changed.
I remember at one point we talked about maybe that include a little bit of bolt on and with pricing perhaps at your back, how are you thinking about the growth towards the target as well? I'm especially curious how much operating leverage might help. And then secondly, coming back to that EBIT bridge on page 16, it sounds like I'm trying to get some help to separate what might be ongoing versus kind of one off in nature in that, because it sounds like wage inflation will obviously continue to be a headwind. And then you've taken some cost control measures. But if you could help us think through a little bit more about how sustainable those cost control measures would be?
I can see like hiring freezes and travel restrictions being something you can maintain for a little while, but tough to run for the long run. So and clearly the inventory revaluation wouldn't be ongoing. So a little help about ongoing versus one off there would be helpful. Thanks.
Jeremy, thank you. So let me answer the first question. By the way, I think the measures we took most of them are sustainable, which I think that's for Martin I think to get into detail. First on your question around the underlying assumption for growth. Yes, you are right that in the previous conversation, I think also with you, I think we talked about the deemphasizing the growth number and having that as a mix between organic and inorganic.
We've done, of course, since we announced in April much more detailed work looking at the shifts in raw material, etcetera, on the 15 by 20 plan and we'll elaborate on that at module this afternoon. But what we basically have built a plan on is not needing above market growth.
I mean, if we I just
want to point out that we are at this 4% right now. So what was deemed as impossible at the beginning of the year, we have to deliver that in a very difficult year. So there was merit to it. But we didn't think and that was what I've been addressing, we didn't think it was prudent to build a plan on exuberant growth in market because that is all sorts of unintended circumstances can happen. So we have built our plans on actually market growth assumptions, so being at market and delivering 15% return on sales on that assumption.
Any upside in the detail to say operational leverage will help, but we don't need that to get to the 50% by assumption. That is and I think we'll have more details this afternoon. Maarten, maybe you can talk around the
Yes. So how should you think of this going forward from an EBIT bridge point of view? So we have basically a continuous improvement program running. And our continuous improvement program basically compensates wage inflation and cost inflation. So you could take that as a kind of a net balancing act.
And on top of that, we have and we will talk about it extensively this afternoon in the analyst roundtable. We on top of that, we have a number of initiatives lined up to bring us to our 15% growth by 2020. But specifically, I want to say we are on track to deliver that 1000000 cost savings, which we announced last year, and that will come through our bottom line in 2018.
Jeremy, maybe to add on that, if you look at the dynamics of 2017, I think the whole industry, including ourselves, had a certain exuberance in the Q1. Then the raw material came in. And then you have the typical inertia, which we then spent a couple of quarters and I think that's what the whole industry is kind of referring to, to get our market prices back in line with raw materials. So what we did, if you summarize in the last 4, 5 months of year was what I would call good parenting. It's while we develop plans, as Maarten has explained, for ongoing structural savings and reset of the structures, etcetera, What we did is indeed do a number of items.
Some of them are more sustainable than others. But I think that's what you do in good parenting of the business, while more sustainable elements kicking as we will be expressing this afternoon. I'm happy with our business and with our reaction if I compare it to peers in our market. I think our paints coals business has shown 1,000,000,000. Okay.
Understood. Okay. So you basically had
to ask the organization to tighten things up a bit, enable to enable the bigger programs and the stronger programs to
And the stronger phase up your origami,
correct. Okay.
Understood. Okay, great. Thank you very much.
Thank you. Next question is from Alex Stewart. Your line is now open.
Hi, there. Good morning. Just to go
back to Stephanie's question on the actuarial deficits, the ICI pension fund final review, I think, done at the beginning of this year or at least some indication in the beginning of this year. Do you have any idea how that actuarial deficit has changed from the roughly EUR 1,000,000,000 euros that was last reported at the beginning 2016? Any sense of the movement would be great. Thank you so much.
I didn't hear your question very well to be honest, but your question is on the actuarial deficit and the change of the actuarial deficit. So I mentioned earlier that we have kind of a triannual agreement in place. It's coming up again those discussions mid this year. And that will be, of course, a topic of discussion, especially given the fact that from an IAS 19 perspective, we are in a surplus. So yes, the discussion will get a different dynamic.
But it's important to indicate that we still expect top up payments going forward at this stage.
So you don't have any sense to how that actuarial position for the ICI in the quarter? Funds have changed over the last 3 years?
Not at this stage.
Okay. Thanks.
Next we have Niklu Gundogan. Your line is now open.
Yes, good morning. The first question is on raw materials. So clearly the Chinese plan to improve air quality had an impact on the availability of material. So just wondering what you're seeing on the supply side. Is that normalizing or are we now we are in spring?
So any comments there would be helpful. And then secondly, on your outlook, just wondering why you have not provided a positive outlook as you did last year?
Okay. So I'll shift that there was one comment you made around availability, which I'm not sure you talked about. But let me talk a bit about the raw material situation. Availability was sometimes an issue in specific areas. I mean, that's definitely correct.
I think our procurement organization has been able to mitigate that. So we didn't have any bigger items in there. But then often comes then if it's a tight market that comes at a certain raw material cost as we have discussed at length in the previous answers for that. So for in that sense, I think we don't expect significant issues on getting the material. We do expect, as I've indicated, still increases in pricing for raw material.
We estimate it to be in a single digit mid single digit percentage. We have the plans in place to mitigate that. I mean, there's a number of elements that we have in place. But it also, in fact, it's clear that we aim our pricing actions in our markets with that in mind because we know that that's actually not. Let me just walk you because I didn't hear all of your questions whether that answers the first part of your question.
It does. It does. I mean, it was a little bit specific
on China, but it does, I think.
I mean, China, that's a whole different topic in itself. Yes, I mean, that had an impact in the TiO2 market, for example, notably because there was a dislocation. And in Asia TiO2 prices really went significantly high. Second thing is that, of course, for our Chemicals organization, who has a big production stake in China, there was you had wins because some people were shut down. You had also had some losses because some people were shut down who were supplying you.
So it's kind of a mix back in general. On the second question, I think on the guidance, Martin?
Yes. So on the guidance, we've given clear guidance for 2020. As you know, we had a 15% return on sales and 25% return on investments. For 2018, we don't give specific guidance, but I think it's important to realize how 2017 shaped up and how that looks for 2018. Specifically, 2017, the Q1 was a very strong quarter.
And in fact, the raw material prices started to kick in, in the second quarter and from the second quarter onwards. So that's also why we are flagging that we have a more challenging start of the year given challenging comps, specifically for the Q1, while we take time to make sure that prices price increases are coming through and basically supporting our margin going forward.
Yes. So maybe to build on that, I mean, we haven't given the guidance, but I think we have earlier stated that in our 15% return on sales for 2020, that this is not flat and that is going to be a big surprise in 2020 that we definitely want to have a curve that shows a logic from where we are right now to that number. And that's also what we have in mind
for. Okay. Thank you.
Next question is from Charlie Your line is now open.
Good morning, gentlemen. Just a few from my side. First off, just CapEx guidance for 2018, if you could give us any steer for the group as a whole and perhaps spitting out paints and coatings and specialty chemicals, that would be helpful. Second question, just on the negative mix. I understand it's about the regions where you're growing faster.
But perhaps you could dig into a little bit more detail in the regions, maybe Europe. I mean, you touched on the U. K, which regions are doing well, which regions are not doing so well driving that significant negative mix in the Q4? And then should we expect that kind of mix effect to continue into 2018? And then lastly, just on Specialty Chemicals, do you expect to continue to see, I guess, positive pricemix or price development into 2018?
Or do you think a large part of that was seen in 2017? That is all. Thank you very much.
Right. So let me ask your questions in reverse order and then end with Martin handling the CapEx question. On Specialty Chemicals, yes, we do expect that to continue in 2018. That business, in fact, has a different dynamic in the sense that a lot of the raw material price throughs are pretty automatic. So that's as raw materials still go up, I mean, that's what you will see.
In addition to that, that business continues to do very strong in all segments and in all regions. And we've announced about 14 capacity expansions last year in Specialty Chemicals. That's actually kind of a teaser for your CapEx question. And that continues to be the case. And all these projects were high and fast payback projects that we did.
Secondly, on the negative mix, I mean, we've indicated if I look at the executive Spain, we saw our regions stabilizing or trending up, including Europe, Middle East, Africa that was a bit down. But in Europe, Middle East, Africa, the real growth tends to be outside of the traditional Europe. And therefore, you see a price mix shift sometimes there too. What Asia is concerned, that is really going very strong for us. As we explained a couple of times, every time you look at executive paint, you see a negative price mix, which is actually hiding very good efforts on price increases in the market.
But the Asian pricing levels are lower than they are in Europe. Having said that, the profitability, the return on sales for those businesses is actually very, very good. It's not dilutive at all. It's just in the pricemix column. It actually shows a negative.
So we expect that in large to continue as we see continued in our Asia business. Just want to point out for executive pain that despite having taken a big raw material blow in 2017, I mean, a fair share of the €300,000,000 you will see that all in all that business has delivered about the same amount as what was a very strong 2016. So just put it in perspective on how the Asia growth has played an effect in there. For the other segments, I think we see those that are growing and doing very well in our portfolio continue to do so, looking at vehicle refinish, looking at powder and those businesses that actually were somewhat and regions that were somewhat under channel that were challenged as remanufactured, we talked about. I think that's not a contingency.
So I don't see any major shift in pricemix, but we'll see price increases coming in. With the CapEx, I think maybe Martin you can handle that.
Yes. So for CapEx going forward, we'll be more or less in line with what you've seen in 2017. To be very specific, for paints and coatings will be around the €250,000,000 and for specialty chemicals will be around €400,000,000
Great. Thank you very much, guys. Okay. Thank you, everyone. I think that concludes our Q and A session and call for today.
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