Welcome and thank you all for standing by. At this point, all participants' lines are in listen only mode until the question and answer session of today's conference. This conference is being recorded. If you have any objections, you may now disconnect. Now, I will turn the meeting over to your host, Mr.
Lloyd Midwinter. You may now begin.
Hello, and welcome to the Aitsa Naval Investor Update for Q3 2017. I'm Lloyd Midwinter, Director, Investor Relations. Today, our CEO, Thierry Vanlanke and Interim CFO, Hans de Vries will guide you through an update of our strategy and results for the quarter. Sven de Merland, our General Counsel is also on the line. We will refer to the presentation, which you can follow on screen and download from our website, axionoval.com.
A replay of the 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 statement is also applicable to the conference call and any answers to your questions.
I will now hand over to Thierry, who will start on Slide 4 of the presentation. Thank you, Lloyd. Good morning, everyone, and thank you for joining us on the call. As already outlined in our September 8 business update, Q3 was a challenging quarter due to a series of adverse external events. Despite that, however, we are continuing to achieve growth while dealing with these headwinds.
During the quarter, our volumes and revenue increased despite these various challenges. We announced capacity expansions across all of our 3 major business areas, including officially launching Ashington, which is the world's most advanced and sustainable paint factory to support our GULIX brand. Industry specific headwinds continue, including higher raw material prices for paints and coatings. We are taking measures to deal with these challenges, including increased selling prices and additional cost control. On the next few slides, I will summarize the progress we are making towards achieving our strategy before returning them to the results for the quarter.
We are creating 2 focused high performing businesses, paints and coatings on the one hand and specialty chemicals on the other side as announced earlier this year. The Phase 1 of creating a fit for purpose paints and coatings organization will deliver €110,000,000 of savings in 2018 on our way towards achieving our 2020 guidance. We are also putting in place a new management structure for paints and coatings, as you will probably have seen the announcements during the recent couple of months. We will hold an EGM on November 30 for shareholders to formally approve the separation and following shareholder approval a €1,000,000,000 special cash dividend that will be paid on December 7th. The separation of Specialty Chemicals remains firmly on track.
So now turning to Slide 6. The Phase 1 of creating a fit for purpose paints and coatings organization is expected to deliver €110,000,000 savings in 2018 towards achieving our 2020 guidance. The one off cost of this program will be around €120,000,000 which will be incurred in 2017 and the first half of twenty eighteen, roughly half in each year. We have already announced a new simplified and performance oriented management structure for the executive committee and their direct reports. This is now rolling out further in the organization during the coming months.
Today, we are more focused on Paints and Coatings Company. In this call, there are also significant opportunities to work closer together in a number of areas. This will include the reorganization of our supply chain and consolidation of infrastructure across the network, including warehouses and distribution. Will also be better leveraging our support functions, including SG and A and R and D. Integrated supply chain will deliver roughly half of the savings, while the SG and A and the new management structure combined with better leveraging of support functions will contribute the remainder.
We are also making good progress with the separation of Specialty Chemicals, an integral part of our strategy to create 2 focused businesses. The internal separation is ongoing and we will have a separate organization in place by January 2018. This will pave the way for curating a world class specialty chemicals business. The separation will allow us to unlock further value and increase returns to our shareholders. Therefore, we will go ahead and ask our shareholders for approval of the proposed separation during the AGM to be held on November 30.
The requested approval covers both a private sale and a demerger because we currently see both as viable alternatives without a clear preference for either option. If we were to pursue the separation by way of an IPO, we will return to shareholders and request approval. The dual track process is an established means for separating businesses from listed companies. This will ensure flexibility necessary to obtain an optimal result for our shareholders and our other stakeholders. The external separation is on track and to be completed by April 2018.
The total one off costs associated with the separation will be around €175,000,000 incurred during the remainder of twenty seventeen and the first half of twenty eighteen. These costs are in line with similar processes at other companies and with our earlier set budgets. Shareholders will benefit directly because we intend to return the vast majority of the net proceeds to our shareholders, starting with the advanced proceeds of €1,000,000,000 special cash dividends paid on December 7, following our shareholder approval. Let's now return to the results of the quarter on Slide 9. We are clearly dealing with a mixed market environment.
Our paints business continues to grow, driven by China and the rest of Asia, while growth across much of EMEA has been offset by lower consumer confidence in the UK. Latin America is stabilizing. Strong momentum for Powder Coatings and revenues from the acquired Industrial Coatings business means coatings grew overall even though headwinds continued for marine and protective coatings. Despite significant global supply chain disruptions, including but not limited to Hurricane Harvey, specialty cannabis volumes were flat and a strong positive price and mix reflects the successful pass through of raw material cost inflation. However, for Paints and Coatings, raw material cost inflation has led to margin pressure, and we are taking measures to deal with this, including increased selling prices and additional cost control.
A stronger euro versus currencies in major sources of revenue, the U. S, China and the U. K, also means we are now experiencing adverse currency effects when translating our results into euros. We are however very encouraged by continuing to deliver growth in many of our markets while dealing with these various challenges. Turning to Slide number 10.
In Q3, volumes and revenue were higher despite the before mentioned strong external headwinds. EBIT was impacted by various challenges, including adverse currency effects, supply chain disruption, continued headwinds for marine and protective coatings and greater than expected raw material cost inflation. The margin pressures for Paints and Coatings due to the higher raw material costs are not yet fully offset by mitigating actions impacted further the profitability in Q3. These measures were already effective for Specialty Chemicals where returns were in line with last year. Slide 11 shows the quarterly trends for volume and pricemix.
During the Q3, volumes increased for paints, continuing the growth momentum that we've seen in previous quarters and they were also higher for coatings. Volumes were flat for chemicals despite significant global supply chain disruptions. The acquired Industrial Coatings business also contributed to the growth. Price mix was positive for Specialty Chemicals, reflecting the successful pass through of raw material cost inflation. Same mix was flat for coatings.
Changes in geographic and product mix as we grow faster in some markets than others continue to impact price mix effect for paints, even though we have increased local selling prices in most markets. I'll now hand over to Hans, who will briefly guide you through our financial results in a little bit more detail. Hans? Thank you, Thierry, and hello to everyone on the call. Starting with a summary on Slide 12.
During Q3, volumes were 2% higher, driven by paints and coatings mainly. Revenue increased 1% mainly due to volume growth and acquisitions, partly offset by adverse currency effects. Raw material prices were higher than last year. We are taking appropriate measures to deal with an inflationary environment. These measures were already effective for specialty chemicals, while expected to take several quarters before fully realized for paints and coatings.
EBITDA at $383,000,000 was impacted by unfavorable currencies, temporary disruption to the manufacturing and supply chain, continued headwinds for marine and protective coatings and margin pressure from greater than expected raw material cost inflation. Disruptions to the manufacturing and supply chain had an impact of around $25,000,000 on EBIT in Q3 related to Hurricane Harvey and other events with the majority of the impact in Specialty Chemicals. These factors collectively impacted profitability with ROTH at 10.6% versus 12.3% last year and ROI 14.2% compared to 15.2% in 2016. Operating income was impacted by identified items totaling $45,000,000 mainly related to the implementation of the new strategy to create 2 focused high performing businesses. Now
turning to each
of the business areas from Slide 13 onwards. Volumes for paints were 5% higher in Q3 due to positive developments in Asia. Revenue was down 1% with positive volume development more than offset by adverse currency and price mix effect, mostly due to strong growth in Asia. EBIT was adversely impacted by continued higher raw material costs in the paints and coatings industry, including titanium dioxide, not yet fully compensated as well as geographical product mix effects. Appropriate measures are being taken to address higher raw material costs, including increased selling prices and additional cost control.
Gross was 9.4% versus 12% in 2016 and ROI was roughly in line with last year at 12.4%. Operating income in the previous year was positively impacted by identified items. Turning now to coatings on Slide 14. Revenue was 2% higher in Q3, driven by the acquired industrial coating business as well as 1% higher volumes, partly offset by adverse currency effects. EBIT was adversely impacted by ongoing weakness in the marine and oil and gas industries, as well as increased costs of raw materials in the paints and coatings industry.
Measures are being implemented to mitigate current industry specific headwinds and while price mix was positive for most of the segments, an increasingly competitive and pricing environment exists for Marine and Protective Coatings. Gross was 10.3% versus 14.2% in 2016 and ROI was 24.8% compared to 30.9% last year. Turning to Specialty Chemicals. Volumes for Specialty Chemicals were flat in Q3 despite significant global supply chain disruptions, including Hurricane Harvey. Excluding the impact of supply chain disruptions, volume growth would have been around 3%.
Revenue was up 1% due to positive price mix effects, partly offset by adverse currencies. Positive price mix reflects the successful pass through of raw materials price inflation. EBIT was up 1% with favorable price mix developments and cost savings, mostly offset by adverse currencies and global supply chain disruptions. The EBIT impact from the supply chain disruptions was around €20,000,000 for Specialty Chemicals. Loss was in line with last year at 14% and ROI increased to $17,900,000 versus $17,200,000 in 2016.
Moving on to cash flow on Slide 16. Free cash flow for Q3 was $275,000,000 compared to $469,000,000 in 2016. The difference relates mainly to a lower EBITDA move and move as well as the movement on the line changes in working capital provisions and other. This is due to changes in working capital, identified items and other provisions. Net debt was $1,700,000,000 at the end of the quarter compared to €1,300,000,000 at the end of 2016.
The increase is mainly due to pension top ups, most of which were paid in Q1 and the share repurchase program of $160,000,000 as well as currency effects. Turning to the IAS 19 pension deficit. The deficit remained stable at $800,000,000 versus the end of last quarter as shown on Slide 2016. I will now hand back to Thierry for some final remarks on Slide 19 onwards. Thierry?
Thank you, Hans. An interim dividend of €0.56 per share, up 51% compared to 2016, will be paid in November with the option for shareholders to receive a stock dividend up to a maximum of 40%. Shares from the $160,000,000 repurchase program earlier in 2017 have now been canceled. We will also pay a $1,000,000,000 special cash dividend in December following shareholder approval of the separation of specialty chemicals. As we have announced, an EGM will be held on November 30.
The agenda includes the appointment of Supervisory Board members, the appointment of our new CFO and the approval for the separation of Specialty Chemicals. Let's now turn to our outlook on Slide 21. As we've indicated in our September 8 business update, the quarter 3 had many challenges in it from a variety of extraordinary external adverse effects. Going forward, we anticipate positive developments for the EMEA, excluding the UK, positive developments for North America and Asia, while Latin America is expected to stabilize. Industry specific headwinds continue, including higher raw material prices and challenges in marine and protective coatings.
We are implementing various measures to mitigate the current market challenges, including increased selling prices and additional cost controls. The EBIT for 2017 is now expected to be in line with 2016 due to ongoing industry specific headwinds and the quarter 3 supply chain disruptions impact. We are very pleased that we are continuing to achieve growth momentum while dealing with those industry specific headwinds. As these headwinds continue, including the higher raw material prices for paints and coatings, we are taking measures to deal with these challenges, including increasing selling prices and additional cost control. I will now hand over to Lloyd for information about some key dates and opening the Q and A session.
Thank you, Jerry. Before we start the Q and A session, I would like to draw your attention to some key dates shown on Slide 23. These dates are relevant for the interim and the special cash dividend. Please note the date for the full year and Q4 2017 results has changed due to the process to separate specialty chemicals. We will now announce results for the full year in Q4 2017 on March 8, 2018.
This concludes our formal presentation and we'd be happy to address your questions. When doing so, please state your name and firm and please limit the number of questions to a maximum of 2 so others can participate. Operator, we are now ready to start the Q and A session.
Thank you. We will now begin the question and answer session. Our first question will be from Mr. Thomas Wigglesworth. Sir, your line is now open.
Gentlemen, good morning. Thank you very much for your presentation. Two questions, if I may. Obviously, there's been a lot of press discussion about the divestment process for Specialty Chemicals. Could I draw you on a comment to give us an update as to how that process is going?
Have you got a timeline now for accepting bids? Could you give us a little bit more color around that and any tax implications? My second question is starting to think about the how you're going to recoup the hurricane outages. I note that your guidance implied guidance for the Q4 suggests effectively EBIT will be up around €50,000,000 year on year in the 4th quarter. So is that assuming a full recuperation of the €25,000,000 EBIT impact in the 4th quarter?
Is that how we should think about how you're going to recoup the hurricane outages, albeit full in the 4th quarter and then some growth on top of that? Any clarification on that would be very helpful. Thank you.
Yes. Very good. Let me handle the first question, start the second question and maybe Hans can chime in on that one too. 1 on the process for the separation. So on November 30th on the EGM, we will ask for the formal approval to do a dual track, which is either a full sale or a full demerger of the company.
And that means that then overlapping with that, there is some initial contact already to see the pre marketing, etcetera. We are completely on track for January 1 to have it, I would say, the company within the company. So it's of course fully owned by Axonobel, but as a separate operating entity as such. And then we're totally on track to have a separation taking place then in April 2018 as we indicated earlier. So we're fully on track there.
So we will do the double track in parallel. The indications currently are not here yet what would be the most value generating. You implied the tax bill. If you look at what current assumptions are for sales versus what might be the merger, it is really within a very narrow bandwidth, at least on the current assumptions. So I presume we will have to go through the process for a while until we see whether there is a distinguishing factor showing up.
So that's as the question as the response to your first question. The second one on the Q4, you are right. Of course, also the comparable is getting much somewhat easier versus the Q4 of 2017. You indicated the impact of the hurricanes. It was not only hurricanes, it was hurricanes, environmental inspections at customers, suppliers and industrial parks where we happen to be impacted, a fire in at a supplier into a big customer in Rotterdam.
So we have all sorts of almost difficult events taking place. Once you see the current momentum, if you see at the 3 different businesses, you are correct that we see a significant bump up versus the Q4 of 2017. Halsted, I don't know if you would want to put more color on that. No, just Terry, you kind of mentioned most of it. One of the elements is obviously that the comparables are somewhat different in Q4.
We did see the full impact of marine and protective in Q4 last year. The other element is that we had a large restructuring element in the Q4 of last year, which we don't expect to reoccur in Q4.
Okay. But you would expect a full
could not ship if there was an issue at the customer. As you might see from other industry announcements, there's also a market impact, which is not part of this €25, €1,000,000 In fact, the underlying impact in our business is larger than the number we mentioned. But that becomes a bit mushy to try to quantify that in detail. So if your question is whether our plant of specialty chemicals and the one from marine and protective that will impact it directly, for example, in Harvey, whether they're back up and running, the answer is yes. But we still see throughout the network.
We see customers that have more damage, people who are or suppliers who have some issues, etcetera. So it has to somewhat more precision on the numbers versus what we indicated early on in September around the outlook for the rest of the year. Okay.
Thank you very much.
Thank you.
Thank you. Our next question will be from Mr. Jeremy Rodenius. Sir, your line is now open.
Hi, it's Jeremy Rodenius from Bernstein. Thanks for taking the questions. First question I have is just on the cost savings you've announced that I think your predecessor probably would have called this business as usual to take out this type of cost and the cost of the cost savings also business as usual costs. So, I'd like to hear if you're back to treating these as exceptional items, that is the cost treating those costs as exceptional items or if you'll continue to report those as
part of EBIT and essentially as part of cost
of doing business to keep the managers honest in their efforts to improve the performance of the business? And then secondly, if I understand correctly, you'll probably get an insurance payment for some of the lost production related to Hurricane Harvey. What order of magnitude would you expect that to be? And would that come in Q4 this year or would you expect that to come next year? Thanks very much.
Thanks, Jamie, for your question. A couple of comments. It's not really business as usual. Maybe just to make sure there's no confusion. There is one there is the ongoing 150,000,000 ish continued improvement processes that annually offset inflationary pressures, etcetera, in the business.
That, of course, is not part of what we just announced. That is indeed business as usual, very institutionalized in the businesses and in our functions right now. So that becomes that is part of the baseline. You may recall that in the April session, we talked about a €50,000,000 reduction plan, cost reduction plan. So what we announced now, the €110,000,000 as the impact in 2018 accounting year is actually an enlargement of that earlier set number.
I would also say that the nature is somewhat different of these savings because this really goes about creating a focused paints and coatings business. It is part of having a much simplified, much more operational focused management that is rolling now in the organization through. But it's also based on levering much more supply chain, warehouses, infrastructure between the businesses, which was really not the scope of previous cost resets, which were much more focusing on functions in general. So in that sense, it is somewhat larger. Now around the treatment, it's going to be kind of there is some identified and unidentified, but I'll hand it over to Hans.
Yes, Jeremy. As this is part of a Phase 1 of transformation fit for post paints and coatings company and it is quite a large amount and set up, those specific ones will be treated as identified items in this case. Okay, thanks. You had another question, I think, which referred to the insurance payments. So Hans, maybe you can elaborate how much and when that is supposed to come in?
Basically, the insurance business, as you know, we have a captive insurance company. And as such, we are going through insurance claims. But obviously, that from a company perspective will not have a positive impact as the costs will be carried by our captive, which are consolidated in the total of AkzoNobel.
Okay. So we see basically the cost move from basically insurance payment from the other segment into specialty chemicals.
Is it fair to say
later this year? It is correct. Okay, great. Thank you very much.
Thank you. Our next question will be from Mr. Tony Jones. Your line is now open.
Good morning, everybody. Thanks for taking my two questions. Firstly, on raw materials, early in the year, many of paint companies were guiding for mid single digit pace of inflation. But looking at a basket of raw materials, this looks like it's now at least double digit, maybe even heading towards mid teens. Could you maybe comment a little bit about whether some of that is correct and how we're thinking about it?
And then in terms of the long term targets, the ownership of the 2020 targets, so the base this year seems to be deteriorating and we'll see how it pans out in Q4. But with that in mind, why do you feel the need to retain those targets? Because some investors might be sort of starting to speculate that you're just going to keep cutting costs further to try and get there, but that could be further disruption looking out over the next couple of years? Thanks. Yes.
All right. A couple of questions. First on the raw material, I think the expectation on the raw material increase in the beginning of the year was indeed lower than what was the result. It was also supposed to be over quickly. So the elements of the raw material in price is that it is indeed higher than what originally thought.
It's much over a longer period of time. That means that we are chasing with price increases, which we see coming through finally in the market. We are chasing with price increases those increases, but we're constantly chasing it. And then 3¢ have been gradual. That means there is a little bit more of a constant margin squeeze in addition to that.
So you are right that it is higher, it is longer and it is more gradual. It gives some issues sometimes in getting price increases through. And that reflects the whole industry announcements you've been seeing coming over the last few weeks. They're all very similar in that respect. The second so by the way, we for some of those materials, we see it flattening out.
But there are also notable exceptions where we believe this may go on until the first half of twenty eighteen. That's also the reason to take measures. Now going back to your question on the 2020 target, I think I've been on record a couple of times that the 15% return on sales is to finalize the journey from being in the follower group in single digit was to basically get to the leading group, not only in size, but also in profitability. Therefore, I think in 2020, the 15% is a must and a continuation of the line we had. You're right that the base, of course, due to a number of extraordinary events has been impacted.
The analysis that we've done, we don't think that this is a lasting chronic situation. This is more punctual. Now, but that also explains that if the base is somewhat more impacted in this year, that therefore we accelerated the step we have to take for 2018 as the first, I would say, the first episode to get to the 2020 numbers. Now around your cost cutting, I can assure you we would not cut costs if that would impact our agility in the market and our winning in the market. I may point out that the costs that have been taken out so far still result in us showing a healthy growth in the market.
I think that's probably somewhat different than what you may hear from some others. So that doesn't impact us. I think for us it's around prices. And yes, there is I believe still some cost takeout, which is duplication for not using our economy of scale before. So since I'm very much tying our
company to
the 2020 targets with big vigilance in the management team not to do this short term because that defeats the purpose on why we do it in the 1st Thank you.
Thanks for the detail. Thank you. Our next question will be from Mr. Paul Walsh.
I had two questions, please. First one on specialty chemicals. Given the strength in the chlor alkali chain that we're seeing globally, I was just interested to see industrial chemical revenues up 2% in the quarter. And I would have I guess expected better developments given the pricing dynamic in caustic soda in particular. So I was wondering frankly what I'm missing there given your size in that market.
And then the second question with the EGM coming at the end of November, I think you said Thierry that you'll make a decision on spin to existing shareholders or trade sale. Presumably you've got a fairly good feeling at this stage as to which one is the more likely route. I wondered if you could just give more in terms of how that decision is going to be made. What are things you're balancing one way or the other right now? Thank you.
Okay. On your first question, so if you talk about the Specialty Chemicals, there is a strong momentum. And yes, you are right, the industrial chemicals business has an even strong momentum in it. 1 of in all the things that happened in the Q3, one that was almost failing in comparison to hurricanes and China, etcetera, is there was a fire in the Shell Permiss refinery. We are not a customer of them, but that goes into other companies that are big customers in the cluster of Rotterdam.
So the Q3 has been impacted by a significant period in the beginning of the quarter that that business was not operating in one of its largest clusters. So the fact that they actually are revenue plus despite having been down for weeks in the quarter shows you the underlying strength. It's one of those things that probably since so many things happened externally in the 3rd quarter almost gets forgotten. So that business has indeed a lot of momentum, a lot of traction. I think that's a good tailwind going into 2018 obviously.
Just on that, Cherry. Sorry, just a thought to begin with on the second question. Do I take it therefore that the volume disruption on industrial chemicals was probably double digits and therefore that 20 €1,000,000 of hit that you referred to in EBIT in Specialty Chemicals would have been largely industrial chemicals as well?
Well, in fact, when we talked about the euro impact, it was more to do with the hurricanes. That business has catching up. But I mean, there is indeed a delay on that. Hans, I don't know if you want to give more detail on the numbers there. The impact on the Rotterdam is low double digit numbers on revenue side.
So yes, so low
double digit. In industrial chemicals?
In industrial chemicals. So low double digit revenue here. Sorry to interrupt. No, that's fine. If we go then to the EGM, Oliver 30, we go with 2 options for it.
A, that is indeed to keep the flexibility on how we either we sell or we spin. But we wouldn't alter that if we already had a clear thought on what we want to do. And I maybe alluded to that in one of the previous questions. With all the good work that we do internally and lots of people spending lots of quality time internally as I'd imagine on working on the separation, Where we get the financial analysis on 1 or the other, it is actually in a very narrow bandwidth. So therefore, I think it is wise to go with a dual track in that process to see that we maximize the value, but also in addition to see what is the stakeholder view once this business is divested.
So the decision is really going to be based on what is the value generation, what's the complexity of doing it. And then the 3rd part is really going to be around, okay, so what is the intent from the new owner for the business and is it therefore better than to demerge it or to sell it.
And just to be clear on Thierry, so we'll get a headline on the 30th November confirming either private sale or spin. So the decision will be made that day.
No. We will ask for the approval to shareholders to allow us to embark on a dual track for either sale in full or demerger in full
from specialties. Understood. Thank you.
Thank you. Our next question will be from Mr. Peter Clark. Sir, your line is now open.
Yes, good morning. Thank you. Want to take on Tony's question from a different tack. I mean, playing with numbers, I mean, you're probably 400 basis points off the 2020 target. Obviously, your new efficiency program, if you keep it all without 100 basis points, let's say, raw material, short 100 basis points.
So there's still this 200 basis point gap. Now obviously, you've got the ongoing efficiencies, you've got operating leverage. I just want to be clear, you basically see this 200 basis point gap clearing through those sort of issues. And then secondly, on the gross margin performance in the Q3, you were down 250 basis points, I think, and 200 basis points on the 9 months. And judging certainly from what your competitors are saying about Q3 as well as their performance in the 1st 6 months and even trying to adjust for mixes.
And it's clearly a differential here in terms of performance. I mean, you are performing far worse. I accept things like titanium and neuromideanissue. I'm just wondering if there's anything you would point to that might be reflecting that. So those are the 2 questions.
Thank you.
Yes. A couple of things. One, I think maybe more than other people, we were directly hit, for example, in the Houston area. We had 4 plants directly hit. I mean, and then we have the China where we had another 2 plants that were encumbered to produce.
So that is a bigger point of it. Yes, we added titanium dioxide, but this is for the whole industry. If I look, for example, in our businesses, if I look at Performance Coatings, in fact, I'm pretty encouraged with what I've seen around the volume. We also see the pricing finally getting some traction. I think that's been notoriously viscous to get our prices up in those markets, where of course, where you see some more lag maybe in some of our numbers is the marine and protective impact, which is for us a predominantly or I'd say relatively speaking is a bigger part of was a bigger part of our portfolio than with some of our competitors.
So that may explain it. If you look at those businesses and you make a section on that, I think our Performance Coatings business, I'm pretty encouraged with what I see. At the same time, if you look at paints, exceptional growth in the quarter and that's now a number of quarters in a row. So we're definitely there not only holding our own, but we're actually increasing our impact. But you see the price and mix in effect is of course that I would almost say the more successful our mid market growth is in Asia, the more you see that in the price mix.
But it is definitely in the return on sales, it is actually accretive in the sense it is positive on that. So that you really have to look at the details. But compared to the others, you should definitely not underestimate the massive impact we had in the Q3 on a temporary basis in specialty chemicals. Again, our volume growth overall was 2%. If specialty chemicals had just been continuing to produce in those plants, it would have been 3 plus which means that in market wise, I think we're definitely I think on a good roll there.
Hence, which I don't want to be talking every quarter around external events, hence us accelerating the transformation plan. But I do believe that it's an option. It's something that's necessary to be fit for use. And I think that's actually going to make us more agile.
Thank you. Can I ask just one clarification on this there's still some charge in the 2017 Q4 that helps that because obviously we're talking about this 20% up on the year on year comp? So there still will be some underlying efficiency charge in that EBIT in Q4 for you. Okay.
That's correct. And also, maybe you can elaborate on what was indeed what happened in the last quarter last year versus last quarter this year? No, last year Q4 last year, we took a charge, restructuring charge, which from a comparator perspective will help us in Q4 this year. Okay. Thank you.
Thank you. Our next question will be from Mr. Jaffrayer. Sir, your line is now open.
Can I just ask 2 questions, please? Could I just check the Phase II and Phase 3 of the restructuring program that you've got?
How much cost savings do
you expect to get from that? Given the comments you made the start of September, I'd assume another €100,000,000 to €150,000,000 is what your guidance what you're looking for? And then secondly, could you tell us what the price increase was in decorative coatings, so excluding the mix impact, please?
I'm not sure if I fully understood your first question, but let me try to get some clarification. So you're asking for the phase, the transformation plan where the impact would be or
So no, what I'm suggesting is I think in the conference call on the 8th September, you said that the overall plan to make Axo Coatings a world leading business would take about 2 to 3 basis points out of your cost base. Hello. I'm trying to understand the Phase II and Phase III to get to that point, what additional cost savings do you expect to Okay. So we're rolling out the first one, so you want details on the second and the
third one. Okay. So we're rolling out first one. So you want details on the second and the third one. So that's maybe not that easy to answer.
But let me tell you what the sequence is in that's going to make it easier, I think. So we since the new management team is in place, we've been very much deep diving on specific on the paints and coding side, how to get more traction, how to get more agile, how to get more standardization, actually economy of scales versus having the different vertical integrated business working next to one another. So what you see here is the first rollouts because we want as quickly as possible to get the steering wheel in our own hands given the external effects that we have. Now we will continue to work. So it's not going to be we do one plan and then we wait until this is done and we do the second plan.
We roll it out as actually the elements are being clarified. You won't see any references in this first transformation to procurement. You won't see anything to non product related procurement or product related procurement because those plans are not finalized yet or not quantified enough yet for me to talk about it in public. So we will roll them out as we are. So don't see them as a sequence.
They may actually be overlapping as one phase is ongoing that we actually announce the second phase. So I'm not sure that answers your question. But I'm
assuming given that you're confident on the 2020 target of 15% EBIT margin, you must at least internally have some idea of what these ultimate cost savings are going to be combined to?
No, no, no, no, absolutely. Now there's also part here, if you look at the underlying prices and the cost control we do, you see us edging up. In fact, this is with all the external noise that's on the business, you see our margin stabilizing or getting back up there because the price increases are getting through. So that's or narrowing the gap because we've been constantly had this margins increase during the year. So that if we extrapolate what we expect is going to happen with raw materials, etcetera, we there is strength in the underlying business.
It is not all just the true cost. And yes, when we quantify the bucket, that's why we feel we can definitely get to the 15% ROS in 2020. But to announce those buckets in detail, they're not fully baked yet as we've done with the ones that we've announced today. Your second question was there's a lot of price increases in Deco. But I would say suffice it to say that in and again in the whole things and coatings area, maybe with the exception of marine and protective, we are seeing traction on our price increases than to be overtaken again with raw material increases.
So it's been the chase during the whole year. We see price increases. If you look at Vekko, you see in regions, you see in local pricing for the same product like for like, we see our prices going up. I think it would not be wise I think to give detail in this call on how much it is exactly. But we do see positive pricing momentum in the system.
Okay, thank you.
Thank you. Our next question will be from Mr. Laurence Alexander. Sir, your line is now open.
Good morning. Two quick ones. First, were decorative paint volumes positive outside Asia in aggregate? And secondly, with the call out of the environmental inspections in China, have they given you any guidance on what to expect for 2018? Okay.
The first question on the volumes, the volumes in Asia were as you've seen are very positive. In the other regions, it's either flat or actually slightly down. In the markets where we're down, we've done obsessively looked at share and what we're doing there. So there is no issue there. So but on the volumes in certain parts, specifically I think in Europe has been in certain markets relative to these CapEx, I mean.
And the second question was? Just to clarify, was the call out of the environmental inspections in China if the government has given any indication on what to expect in 2018? Not really because these were not necessarily environmental inspections on us. In fact, we that was not the case. These were inspections either at big suppliers, at customers or sometimes in the area or the industrial parks where we were just one of the units operating.
And I think the whole chemical industry is a little bit watching where it's going to happen next. So it's difficult to predict. I presume since the industrial parks in China where we're operating have been inspected, one would assume that that basically keeps us all for a while. But I think we're probably not the only ones who kind of are a bit puzzled on what the process exactly is and when it might hit, including by the way local Chinese players who have often been taken out of the market if they're not compliant with environmental regulations. So I'm not sure we have a straight forecast on that, but I presume they should be stabilizing as of now.
Thanks.
Our next question will be from Mr. Laurent Favre. Just one question for me. You've talked about the ability to win in the market and you've talked about how you demonstrated better growth than your peers despite the cost cutting. And you've also not demonstrated pricing and I understand the mix issues, but should we not assume that you are being a bit less disciplined than your peers in the marketplace and that's how we can justify the growth on one side and on the other side the delta in margins to your peers that seems to be widening not narrowing?
Thank you. Okay. A couple of questions.
No, the answer is no because that if we look at markets, even the markets where we're growing, what the local pricing has done versus before, that's actually going up. So I would be as suspicious as you are that was by lowering prices etcetera. So that is definitely not the case. So that's the one element. 2, I think the margin widening I'm not so sure.
I would actually wait a little bit until we see the results coming out. Now we are, as I said, in paints and coatings impacted very adversely in the marine and protective. We also have to say the currency and if you probably compare ourselves then with some of the U. S. Players, I mean the fact that the euro is strong makes it at least a translation headwind if you see those numbers.
But I can assure you that we are slicing and dicing this by segment by competitive etcetera and that is not the sentiment that we have here.
Okay. And just on Marine and Protective pricing, as Marine and Protective is about a quarter of Performance Coatings, you talk about price increases for the other segments, overall pricing being flat. Does it mean that pricing in marine and protective has deteriorated by about 4%?
Is that accurate? Well, indeed, when you look at Performance Coatings, if you would look at the 7 elements in that business, it actually looks pretty good for 5 of them. So the good news is that's where we finally start seeing some pricing tractions and that was good, given the raw material impacts that we've seen in those businesses. But you are right that in Marine and Protective, that was I think we alluded to that in the previous call. If you have a market that is down to such an event, it is just a matter of time before people start trying to get to share and buy share.
We are defending our turf as the big player there, but yes, there is a significant price pressure in those markets, absolutely.
Thank you. Our next question will be from Mr. Mutlu van den. Sir, your line is now open.
Yes, good morning. The first question is on the Deco business in EMEA. Your revenues were down 4% year on year.
Can you tell us what the
split was between currencies and price mix? And then secondly, on Marine, obviously, revenues are down. Can you just tell me how your order book is doing in the newbuild business? Is that also still declining?
All right. The first is on Deco in Europe. Well, as you know, of course, the UK market is for us a significant market. It is probably the single largest country market that we have in our Vectativ Pain business. Our overall exchange rate impact in our business is -3%.
That encompasses more than just the European point. But you probably have a pretty good idea of how big our U. K. Business is. And if you then look at what the pound has done versus the euro, that is a significant impact in our business indeed.
The second question was around marine newbuilds. Well, newbuilds are trending up, but it's still from a very low base. I think those statistics are pretty well known that it went from 2,000 plus ships to a real dip of around 400, 500 and is now going up with a big sigh to like $800,000,000 So we see that going up gradually. But this I would say it is still in the valley. And I would not call it the valley, I would call it the ball top where we're actually at the bottom there.
So that upside is actually not enough to really look at the upside on that. Yes, it is so that in the if you look at preliminary, we see a bit more build. But to be very honest, that comes relatively late. So it's just new builds right now. This painting of those ships is about 18 months later.
So we will I think I've indicated in previous calls, if there is any trending up in the bathtub, I think it's going to be end of 2018, early 2019 that we're actually going to see some impact on that and even that's going to be relatively limited. Okay. Thank you very much.
Thank you. Our next question will be from Mr. Christian Faurek. Your line is now open.
Hi. Christian Faurek from Kepler Cheuvreux. Thanks. Coming back to the U. K, could you please share with us organic growth in Deco U.
K. And contrast that with organic growth in Continental Europe and your Deco activities? And then second question would be, it looks like your current message into your sales force is to go for volume rather than price, even in specialty chemicals where prices are moderately up, but far less than I would have expected even with the hurricane impact and Rotterdam impact. Why is that? All right.
So the first question, I think I've answered it partially that whether Europe is concerned, there was really no organic growth in our Deco market, if that's what you're asking for. There was some growth in EMEA, but the U. K. Was definitely still impacted by lower consumer confidence. So the UK market is not growing.
As you know, we are the very strong player and large player in the UK market. We are holding our share definitely, but we don't that is actually the reverse of organic growth if you look at the UK market right now. Consumer confidence in the non food sector, I think the numbers came out a week ago, continue to be negative. And then if you add in the pounds and you add in inflation, etcetera, there's a number of elements that are trending in the wrong direction for now for the UK for now. Second thing, when you say the marching order to go for volume versus price, that is not the case.
I think the marching order is to go for contribution and get the margins back reestablished. And again, if you look at our markets, that is happening, as I indicated. If you look at the local markets for Deco and you look at the majority of our segments, we are seeing our local prices going up. So that goes against that trend. Again, when you look at Deco, you should not underestimate the huge success in the mid market in China.
But that skews now since a couple of quarters that skews the price mix comparisons if you go year over year. When you talk about specialty chemicals, that is even neither an option or lack of option. The biggest part of that business is on price formula contracts. So there is no pricing up, pricing down. And I can ensure you that in those businesses, parts of the business that's not on pricing formula, the prices went up.
Okay, very helpful. Thank you.
Thank you. At this time, speakers, we don't have any questions on queue. You may proceed.
Okay. Thank you very much for everyone to join the call today and continued interest in Axonobel. Please feel free to get in touch with Investor Relations via the usual contact numbers and emails in case you have any follow-up questions. Thank you and have a good day.
Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect.