Welcome. Thank you all for standing by. At this time, all participants are in the listen-only mode. After the discussion, we will conduct a question and answer session. If you would like to ask a question over the phone, you may press star followed by 1. This call is being recorded. If you have any objections, you may disconnect at this point. I will turn the meeting over to your host, Mr. Lloyd Midwinter. Sir, you may begin.
Hello. Welcome to the AkzoNobel investor update for the half year and Q2 2017. I'm Lloyd Midwinter, Director, Investor Relations. Today, our Chairman, Antony Burgmans, will start with a brief update regarding shareholder engagement initiatives. Our CEO, Thierry Vanlancker, and CFO, Maëlys Castella, will provide an update on our strategy announced in April and guide you through the results for the half year in Q2. Our General Counsel, Sven Dumoulin, and Hans De Vriese, our Group Controller, are also on the call. We will refer to a presentation which you can follow on screen and download from our website, akzonobel.com. A replay of the call will also be made available. There will be an opportunity to ask questions after the call. 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 the answers to your questions. I hand over to Antony Burgmans, who will start on slide three of the presentation.
Thank you, Lloyd. Good morning, everyone. Thank you for joining us on this call. As you know, AkzoNobel values its relationship with shareholders and takes this responsibility very seriously. In recent months, this relationship, especially with a particular group of shareholders, has been somewhat impacted by events surrounding the company. During the past 6 months, we've held 50% more meetings and calls than the same period last year. We have intensified this dialogue to actively solicit the views of shareholders to create a plan to strengthen our relationship. We have been seeking and listening to feedback. In June, we held more than twice the number of meetings and calls with investors compared to the same month last year. A shareholder survey received input from more than 42% of the total shareholding, including those shareholders who have recently challenged the company.
The board of AkzoNobel have thoroughly reviewed and considered the feedback received from shareholders in order to determine appropriate additional next steps. I'm now announcing the next steps. The company today announces a number of initiatives with the purpose of improving shareholder relations. We will conduct a program of meetings to introduce our new CEO, Thierry Vanlancker. On September 8th, we will host an EGM to provide further insight into our strategy and decision in respect of PPG proposals. We have also appointed David Mayhew and team from J.P. Morgan Cazenove as advisors to a newly established supervisory committee on shareholder relations. Moreover, senior executive remuneration will be totally aligned to the new financial plan as we announced in April. We will augment our ongoing program of engagement activities with specific webcasts and events to analysts and investors.
All our stakeholders, as you know, are important, and we look forward to an open and constructive dialogue with shareholders as we deliver on our strategy to accelerated growth and value creation. I now hand over to Thierry, who will provide an update on our strategy announced in April.
Thank you, Antony, and good morning to everyone. This is a maiden call, but I'm really looking forward to getting to know you all in the near future. It is truly a privilege to be now the CEO of AkzoNobel, a company that is full of great and highly engaged people, and are constantly focused on delivering the best product to our customers every day. In my previous role as a member of the Executive Committee, I was deeply involved in developing our strategy to accelerate growth and value creation, which we announced in April and is summarized on slide five of this presentation. We will continue to deliver on our plans for the creation of two focused, highly performing businesses, Paints & Coatings, and Specialty Chemicals. We have a strong financial and operational foundation in place, and we are making good headway.
All of this underpins our confidence on delivering in our commitments for 2017 and the years to come, including increased shareholder returns. Turning now to slide six. We are progressing our strategy to accelerate sustainable growth and value creation. Some major developments during the first half of the year include capacity expansions to serve customer demands from key markets and for growing product lines. The launch of premium Decorative Paints product lines in high-growth markets, and two targeted acquisitions to strengthen our Performance Coatings business. Today, we also announced a new structure for our Executive Committee, including the appointment of Ruud Joosten as Chief Operating Officer and elevating of our integrated supply chain leader, David Allen. This change is designed to drive operational excellence, increase customer focus, and build further momentum and speed. It is all about execution. We're also making good progress with regard to the separation process.
I'll now provide some more details on the next slide. We are fully on track to create two focused, high-performing businesses, paints and coatings on the one side, and Specialty Chemicals on the other. The alignment of our leadership and organization structure is underway, and the works council engagement process is ongoing. Detailed roadmaps are already being implemented for critical transitions, including legal and IT. All external advisors have been appointed and are working seamlessly with the AkzoNobel internal teams, following a dual-track process to maximize value. Due diligence is also taking place by appointed third parties. The separation process is fully on track for completion by April 2018, as we indicated earlier. Turning now to slide eight. During the past two years, we have delivered year-on-year cost savings of more than EUR 200 million from continuous improvement and operational excellence.
Our ALPS continuous improvement program continues to be rolled out to more of our manufacturing sites, and we have made significant progress with implementing our GBS model for the support functions. Savings are running at a similar rate for the first half year of 2017, and we expect to generate savings of EUR 150 million-EUR 200 million for the full year. Taking into account the high raw material prices in an inflationary environment, we are taking the appropriate measures, including putting in place a structure to step and drive operational excellence and additional cost control. We aim to be at the high end of our guidance. Continuous improvement really is and will continue to be part of our DNA. We will now guide you to the operational and financial review for the first half year and the second quarter of 2017, starting on slide 10 of the presentation.
During the first half year 2017, we have seen growth continue in many markets, while conditions have remained challenging in other segments. Volumes for our Decorative Paints business increased for the seventh quarter in a row, driven by Asia as well as Latin America. Demand trends for Performance Coatings differ from segment and region, most notably very strong growth momentum for Powder Coatings versus ongoing weakness in the marine and oil and gas industries. We continue to see higher demand for Specialty Chemicals in all regions. In general, positive dynamics continued in Asia, with good momentum in China as well as South and Southeast Asia. In Europe, trends varied across the region. Volumes increased for Decorative Paints in continental Europe, but the U.K. was affected by lower consumer confidence. Latin America is showing signs of stabilization, including a slight recovery.
We are leveraging our strong financial and operational foundation to adapt in challenging markets and seize opportunities for growth. Turning to slide 11. We continue delivering growth while dealing with short-term market headwinds in some segments. During the first half year 2017, volumes were 2% higher, driven by Decorative Paints and Specialty Chemicals. Revenue was up 4%, and for all business areas. EBIT was up 1%, mainly due to volume growth and continuous improvement, partly offset by high raw material costs and continued weak demand for Marine and Protective Coatings. Adjusted EPS was up 4% at EUR 2.4 per share. In Q2 2017, revenue was up 2%, driven by the acquired industrial coatings business, and growth momentum continued with higher volumes for Decorative Paints and Specialty Chemicals.
EBIT was down due to high raw material costs, lower demand for Marine and Protective Coatings, and a planned maintenance turnaround in Specialty Chemicals. Adjusted EPS was up 2% at EUR 1.35 per share. Following a record performance for AkzoNobel in the first quarter of 2017, we continue to see growth across all our business areas, with the exception of some challenging market conditions in marine and oil and gas industry and inflationary pressures. We continue to take appropriate measures, including putting in place a structure to drive operational excellence and additional cost control to deal with higher raw material prices in an inflationary environment. We will see the benefits of these initiatives later in the year. We also announced the acquisition of U.K.-based Flexcrete Technologies Limited and an agreement to acquire French manufacturer Disatech.
These deals will further strengthen AkzoNobel's global leadership position in supplying innovative industrial coatings and aerospace and automotive coatings. Slide 12 shows the quarterly trends for volume and price mix. During quarter two 2017, volumes increased for Decorative Paints and Specialty Chemicals, building on the growth momentum in previous quarters. Although they were flat overall, due to the ongoing weakness in marine and oil and gas industries. The acquired industrial coatings business also contributed to the growth. Decorative Paints has now grown volumes for seven quarters in a row, and strong demand for Specialty Chemicals continues despite the impact of a maintenance turnaround in Industrial Chemicals in Europe. In Performance Coatings, volumes were up for industrial and Powder Coatings. Although this was more than offset by lower volumes for Marine and Protective Coatings, particularly compared to very strong comparatives in 2016.
Price mix was positive for Specialty Chemicals and Performance Coatings, and flat overall for the second quarter of 2017. This continues the improvement in the previous quarter. Positive price mix for Specialty Chemicals reflects the successful pass-through of raw material price inflation. While for Decorative Paints and Performance Coatings, it can take several quarters before the necessary mitigation impact is fully realized. In Decorative Paints, the price mix effect is entirely related to changes in geographic and product mix, as we grow faster in some markets than others. I will now hand over to Maëlys, who will guide you through our financial results in more detail.
Thank you, Thierry, and good morning to everyone on the call. Starting with a summary on slide 13. Volumes for the first half year 2017 were 2% higher, driven by Decorative Paints and Specialty Chemicals, and revenue was up 4%, including for all business areas. The acquired industrial coatings business contributed 2% growth. EBIT was up 1% at EUR 837 million, mainly due to volume growth and continuous improvement, offset by higher raw material cost and continued weak demand for Marine and Protective Coatings. In Q2 2017, EBIT was lower due to higher raw material cost, lower demand for Marine and Protective Coatings, and a maintenance turnaround in Industrial Chemicals, which impacted EBIT by around minus EUR 13 million. These factors collectively impacted profitability with ROS at 11.2% versus 11.6% last year, and ROI 14.8% compared to 15.1% in 2016.
We are taking, as Thierry mentioned, appropriate measures to deal with higher raw material prices in an inflationary environment. Operating income was impacted by exceptional identified items. Turning to some more details on slide 14, where you find the bridge. EBIT increased 1% to EUR 837 million, mainly due to volume growth and continuous improvement, offset by higher raw material costs. Foreign currencies were favorable overall. There was minimal impact from the acquired industrial coatings business as we integrate the operations and transfer production volume to existing nearby AkzoNobel manufacturing facilities. The full profitability of the acquisition will be realized by the end of 2018. Higher volumes for Decorative Paints and Specialty Chemicals contributed positively, partly offset by lower volumes for Performance Coatings due to ongoing weakness in the marine and oil and gas industry, and the maintenance turnaround in Industrial Chemicals.
Adverse price mix overall was mostly as a result of change in geography and product mix for Decorative Paints. We go faster in some markets than others. Price mix was positive for Specialty Chemicals and flat for Performance Coatings. The other category in this chart includes productivity improvements from our ops and GBS programs. Savings are running at a similar rate to previous year, and we expect to generate, as Thierry mentioned, on the high range of the EUR 200 million for the full year, to at least offset wage and other cost inflation. Included here, raw material price were higher compared with the same period in 2016. We are taking appropriate measures to deal with these higher raw material prices in an inflationary environment.
This measure whereby Q2 2017 already effective for Specialty Chemicals, while for Decorative Paints and Performance Coatings, it takes several quarters before the necessary mitigating impact is fully realized. Operating income was impacted by exceptional identified items. In 2016, operating income was positively impacted by identified items of EUR 23 million, with respect to the sale of assets. In the first half of 2017, operating income was negatively impacted by an exceptional identified items totaling EUR 20 million, mainly related to the implementation of the new strategy to create two focused, high-performing businesses, as well as legal and antitrust related items. I now run through the highlights regarding the half year results for each of the businesses, starting on slide 15. Decorative Paints delivered higher volumes and profitability.
Volumes were up 6% overall, with positive developments driven by Asia and Latin America, while in Europe trends that vary between quarters and across the region. Volumes increased for continental Europe, while the U.K. was affected by lower consumer confidence. Revenue increased 3% due to higher volumes, partly offset by adverse price mix effects, which was mainly mixed, as we go faster in some markets than others. Favorable impact from the Brazilian real was offset by the weakening of the pound sterling. EBIT was up 8% due to the volume growth and cost control, partly offset by unfavorable price mix effects and higher than anticipated raw material costs. The latter had a greater impact on Q2 2017. ROS increased to 10.1% versus 9.6% in 2016, and ROI was up 13.5% compared to 12.3% in the previous year. During Q2 2017, Decorative Paints continued to deliver higher raw volumes.
However, EBIT and ROS were adversely impacted by unfavorable price mix effect and higher than anticipated raw material costs, partly offset by cost measures. Appropriate measures are being taken to address these higher raw material prices. It can take several quarters before the necessary mitigating impact is fully realized. Turning now to Performance Coatings to slide 16. Revenue for Performance Coatings increased 4% during the first half 2017, driven by the acquired industrial coatings business. Demand trends differed by segment and region. Positive volume development for industrial and Powder Coatings were more than offset by continued weak demand for Marine and Protective Coatings. If exclude Marine and Protective Coatings, volumes were actually higher for a Performance Coatings, and price mix was flat.
EBIT and operating income were adversely impacted, especially in Q2 2017, by the ongoing weakness in the marine and oil and gas industry, as well as increased costs of raw material. Headwinds in the marine and oil and gas industry resulted in lower volumes for Marine and Protective Coatings. We are taking appropriate measures to address this higher raw material prices, although, as we mentioned for Decorative Paints, it can take several quarters before the necessary impact is fully compensated. ROS was 13.1% compared to 14.3% last year, and ROI was 27.2% versus 31% in 2016. Profitability for both the half year and Q2 was adversely impacted by the lower volume for Marine and Protective Coatings and the integration of the acquired industrial coatings business. There was minimal EBIT contribution for the acquisition as we integrate the operation and transfer production volume to existing nearby AkzoNobel manufacturing facility.
The full profitability of the acquisition will be realized by the end of 2018. Turning to Specialty Chemicals, as shown on slide 17. During the first half year 2017, revenue was higher due to increased volumes, building upon growth during recent quarters in most business units and all regions. In Q2 2017, volume growth was limited by planned maintenance turnaround in Industrial Chemicals. All other positive price mix reflect the successful pass-through of raw material price inflation. EBIT increased 3% for the first half year 2017, mainly due to the higher volumes. In Q2, EBIT and operating income were flat because favorable volumes and pricing development were offset by the impact of the plant maintenance turnaround in Industrial Chemicals, which impacted EBIT by around EUR -13 million. To exclude this impact, EBIT would have increased 7% for Q2 2017.
ROS was 13.9% versus 14.2% in 2016, and ROI was at 18% compared to 17.1% last year. Slides summarizing the financial results for Q2 2017 are available in the appendix to this presentation. Moving on to cash flows on slide 18. During the first half 2017, free cash flow was an outflow of EUR 256 million versus an outflow of EUR 161 million last year. The difference relate mainly to higher tax paid, change to provision, including the exceptional identified items, which were positive last year and negative this year, and lower addition to sundry provision. These factor were partly offset by higher EBITDA, lower pension top-up payments, and lower interest paid. Capital expenditure and operating working capital both remained at similar level to last year. At the end of June, net debt was EUR 1.9 billion versus EUR 1.6 billion last year and EUR 1.3 billion at year-end 2016.
The increase during the first half year is mainly due to the pension top-up payment, most of which were paid in Q1 2017, dividend paid, and the share repurchase program of EUR 160 million concluded in April. The IAS 19 pension deficit is shown on the next slide, 19. The net balance sheet position of the pension plan as at end June 2017 was a deficit of EUR 0.8 billion, versus EUR 1 billion at year-end 2016. The reduction during the first half year was the net effect of top-up payments, predominantly into certain U.K. pension plans, higher asset returns and lower inflation, partly offset by lower discount rates in key countries and de-risking of pension liability through non-cash buy-in transaction of GBP 262 million in Q1 2017 related to the ICI pension fund. I will now hand back to Thierry for some concluding remarks from slide 21 onwards.
Thank you, Maëlys. We at AkzoNobel are committed to investing in sustainability, innovation, and the societies we operate in. Some recent developments in these areas include a contract with energy company Vattenfall, which will enable us to ramp up the supply of renewable electricity to our facilities in Sweden and Finland, where our goal is to get to 100% renewable by 2020. Architects, designers, and specifiers can now research and create a full coating specification from a mobile device following the launch of our new digital app for Powder Coatings. Malaysian artists showcased their creativity to create murals at Starbucks stores in Malaysia using our Dulux paints. This type of investment is key for long-term sustainable value creation. Now turning to our outlook shown on slide 22.
Going forward, we continue to anticipate positive developments for EMEA, excluding the U.K., North America and Asia improving during the year, while Latin America is expected to stabilize. Market trends will remain challenging for the marine and oil and gas industries for the rest of the year. We have improved our ability to respond to developments in our markets and continue taking appropriate measures, including structural changes to drive operational excellence and additional cost control to deal with the higher raw material prices in an inflationary environment. We continue to expect EBIT for 2017 to be around EUR 100 million higher than 2016 as a result of the growth momentum, the continuous improvement, and the underlying trends, assuming no further material changes in market and economic dynamics, including foreign currencies.
We are making progress on our strategy to accelerate sustainable growth and value creation, including through capacity expansions, new product launches, and acquisitions. Our new structure for the Executive Committee that we announced today will help drive and is designed to drive operational excellence and increased customer focus. The separation process is also on track for completion by April 2018, resulting in two strong and focused businesses. I now hand over to Lloyd for information about upcoming events and 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 24. We hold an EGM on September the 8th and report results for Q3 on October the 18th.
This concludes our formal presentation, and we would be happy to hear your questions. Please state your name and firm when speaking, and limit the number of questions to a maximum of two so others can participate. Operator, please start the Q&A session.
Absolutely. We will now begin the question and answer session. If you would like to ask a question over the phone, you may press star followed by the number 1. Please unmute your phone and record your name slowly and clearly when prompted. Your name is required to introduce your question. To cancel your request, press star followed by the number 2. One moment please for the questions that queue up. For our first question, it comes from Mr. Thomas Wrigglesworth from Citi. Sir, you now have an open line. You may proceed.
Good morning, everybody, and thank you very much for your presentation. My two questions, if I may. In terms of, just with a focus on the cost savings from the continuous improvement in 2017, how much has been delivered in the first half from that EUR 150 million to EUR 200 million that you say? What is the expected real effect in the second half? The second question is on the Executive Committee setup. Obviously, you've noted that you're going to realign the performance with the new 2020 targets. Is there anything else in terms of decision-making process that's being realigned there? Could you elaborate a little bit more on that Executive Committee setup? Thank you.
Okay. Maybe on the first question for the continuous improvement, Maëlys, do you want to take that question?
Yeah. As we mentioned, the cost savings that we have seen in the first half are quite similar to the one of last year, around EUR 100 million. For the full year, we had a program of EUR 150 million-EUR 200 million. Taking into account the higher raw material price, we are taking additional measures to be more on the EUR 200 million level.
On the second question, I think you were asking more details on the Executive Committee changes. First of all, just to start, I'm very happy with the changes we have and with the team in place. These are all people who know the company. In fact, very happy that Werner Fuhrmann, who actually brought the success of Specialty Chemicals, has come back to lead that business transformation, which is a very good thing support. For changes of the Executive Committee, we are all on board with the strategy. This is now all by accelerating delivery of bottom line. Ruud Joosten will become the Chief Operating Officer and will lead all the paints and coatings business aspects of it.
That's where we really want to get in front of the customers, drive growth, and basically share and learn much more around those business and leveraging across those businesses. That's all what Ruud is going to do, drive KPIs, drive the targets in an accelerated fashion. At the same time, we have functionalized integrated supply chain, which was now really by business. Although the profit and loss remains with the businesses, obviously, I do believe that we can accelerate very much the implementation of Integrated Business Planning, the best practices around operations manufacturing, supply chain, and take that to a next level. All of the changes you see is creating stability and people who know the company and their markets, hence Werner Fuhrmann coming back, and at the same time, be it all around execution and driving the bottom line as we promised on April 19th.
Thank you very much.
Thank you. Our next question comes from Paul Walsh from Morgan Stanley. Mr. Paul Walsh, you may now proceed.
Yeah, thanks a lot, guys. Morning, Thierry, Maëlys, Lloyd. Thanks for taking my two questions. The first question was just around pricing. Price mix was negative three in Deco in Q2. Maëlys, I think you said most of that was negative mix. I'm just wondering why we haven't seen more evidence of physical price increases yet, when I think from some of your other competitors, we're already seeing positive pricing in Q2 already. Is it just a timing issue in your distribution channels, or is there some other strategic decision you're making there? My second question is in relation to the EUR 100 million EBIT guidance. I sort of run the numbers, and certainly if I benchmark it against consensus, looks to me like sticking with that guidance implies an acceleration in year EBIT growth to about 15% in the second half to get there.
What are the contributing factors to that in terms of trusting such a healthy improvement in second half profitability, please?
I see these price increases happening, although I think that is a bit more viscous, and that may still be ramping up over the third and the fourth quarter. There, of course, the big impact is of Protective and Marine that basically impacts the numbers there. That's around the price mix. Maëlys, I don't know if you want to add something to that point. No. All right. Second point is, I think around the guidance and what we're going to do on the improvement. Your calculation is almost correct. The underlying EBIT increase is 13% to get to those numbers, to be exact. Let me explain to you what the elements are to get there.
I already pointed out on the price mix, where you would say the second quarter was probably the one where you have the impact of the numbers, but not yet the price part. It's kind of the pinch point to that extent. I've just explained that. Specialty Chemicals is on a roll. There was a one-time effect in the second quarter with the scheduled turnaround in our Rotterdam Industrial Chemicals complex, which is a cluster. The number of companies becomes a mega shutdown. If you exclude that one-time item and you look at the ones where that was not the case, that business will deliver totally according to plan on volume, everything. That's where you'll see a step change in the second half, but that's just the underlying trend that continues.
If I look at the volume element of Deco in June and July, and then as we call the price mix, that really adds up to versus the first half of the year. I've already commented, or we already commented on the continuous improvement targets, which is somewhat back-end loaded as the rewards come in the second half. That adds up to it. Then, yes, there is a significant cost containment that we had rolled out, and we actually re-emphasized around the out-of-pocket. If the markets are more viscous on the margins, well, then you just have to do something about your costing. We basically also are looking at constraining hiring this year for everything that's not critical for the bottom line delivery of 2017.
Again, the items that I just indicated, we do want to accelerate best practices where we have very good examples in the company around IBP and integrated business planning, the whole standardization journey, and hence the structure to accelerate it with the COO and the integrated supply chain structure on the other hand. We wouldn't recommit to this if we hadn't a solid plan and trends that point in that direction.
That's really clear. Thanks a lot, guys.
Thank you. Our next question comes from Tony Jones of Redburn. Sir, you may proceed.
Morning, everybody. Tony Jones, Redburn in London. Thank you for taking my two questions. Firstly, with so much management change, can you be explicit that nothing from the strategic plan as detailed by the prior CEO has or will change? Maybe specifically addressing the potential for major acquisitions by Akzo. Back to the raw material cost. I appreciate the detail, Thierry, in terms of the timing mismatch being probably more acute in Q2. In terms of absolute cost inflation, we can model a basket of raw materials and how the prices change, but we can't see timing effects, perhaps due to your own contract. Could you maybe give us some feeling of whether the peak of cost inflation was in Q2 or whether we'll see that still a headache in the second half? Thank you.
Yeah. Answering your first question, the way that Tom operated the company was transparent and inclusive. The people who are on the current Executive Committee were in the Executive Committee. It's not a new team. It's from the execution. There is no change in strategy whatsoever. In fact, everything is geared up for delivering the results within the strategy that was outlined. That is on the first question. On the cost inflation for the raw materials, I think the second quarter was indeed more of a pinch point. I think that, as I said in chemicals, we have offset it already by the pricing. In Deco, Ruud Joosten, who is running that business up till today, gets indeed in that direction.
The other point that we mentioned in Performance Coatings, I think that's going to be a bit of a, I think we're somewhere at the point where we will be seeing that delta being offset later in the year. Again, Marine and Protective Coatings have their own dynamics. I also skipped basically a part on acquisitions. We have done two specific acquisitions that are small in size, but are very much targeted to open up markets for us. For bigger acquisitions, of course, we always stay tuned for that, but with the separation and with everything that's going on, I think we have lots on our plate already to drive execution at this point.
Thank you. That's very clear.
Thank you so much. Our next question comes from Peter Clark of Societe Generale. Sir, you may proceed.
Yes. Good morning. Thank you very much. Two questions. The first one, I have to be honest, I have trouble with the full year guidance, and one of the reasons is seasonally, obviously Q3 is stronger than Q2. Some of the businesses you've alluded to being quite weak are quite high margin and very important in Q3, like U.K. Deco. The raw material situation, I think, will be more difficult, clearly, in Q3 than Q4, even if it's better than Q2. I'm just wondering about Q3 itself. How confident are you you can start moving towards Guidance that you're now inferring up 13%. Specifically on U.K. Deco, I think in the statement it suggests that was down, and you're pretty cautious, obviously, on the second half. You mentioned the mix with China strong, U.K. down, obviously having an impact, I think, on the overall number.
Just wondering about that because PPG were more bullish. They tend to be anyway, generally, but they were talking about significant share gains, I think, in the U.K., and it still being strong. I'm just wondering how it trended for you through the quarter, and whether you saw any sort of share loss. I know you're advertising quite heavily again in the U.K. at the moment, just how the U.K. Deco business is performing as well. Thank you.
All right. First of all, on where we are, I think I've outlined in the previous answer the different elements on why we feel comfortable around the guidance that we've given. Again, barring unexpected situations in the market, but there we feel comfortable there are the elements that are in there. Not sure if it's value to repeat that. The third quarter, there is a dynamic, obviously that would be a stronger quarter than the second quarter, obviously. Otherwise, that would make no sense with the yearly guidance. Coming back on your question on the U.K., the market, obviously, the consumer confidence, specifically in the non-food retail in the U.K. is down. There's a number of external metrics that clearly indicate that. The whole market is impacted. We have not lost any share in that market.
Yes, maybe the AkzoNobel style is a bit more introverted than some others, that doesn't take away from the results in the market.
If you also, I just mentioned, you've seen the recent IMF forecast, who clearly say that they indeed see lower trending in the U.K. That again, what we're seeing. We are still maintaining our market share. It's more the trend of the market we're outlining.
Okay. Thank you.
All right. Thank you. Our next question comes from Jeremy Redenius of Bernstein. Sir, you may proceed.
Hi, it's Jeremy Redenius at Bernstein. Good morning, everybody, and thanks for taking the questions. The first question I have is about raw materials. Your predecessor had mentioned in analyst meetings that he thought pricing versus raw materials was so different, like prices would offset raw materials for the full year, so that his price increases late in the year would be able to catch up. Would you reaffirm his statement that prices would offset raw materials for the full year, such that in that bridge you showed for the half year, that by the full year, there'd be a complete offset? Secondly, as a new CEO, I think you have a huge challenge in front of you. It feels like you're inheriting a lot of different moving parts.
I'd like to hear in your own words, really what you see as your top few priorities. Specifically, really your top few priorities as you step into the role. Thank you very much.
Well, thank you for your questions. First point on the raw material versus pricing. I think the raw material impact is higher, I think, than we anticipated in the beginning of the year. In addition to that, there is in some of the segments, as I indicated, a bit more viscosity to get the prices up. Now it's happening, but it's happening a bit slower on it. As a result, that explains why we really look at cost containment, continuous improvement, yield, and the hiring slowdown that I've indicated. We try to offset that, as you would expect in a business, by the other means. That is indeed correct. The second thing on the top priorities. Well, the top priority is pretty clear. It's deliver on our financial plan as an Executive Committee, and it's the same people around the table. We committed to that.
The company has a legacy of sticking to their commitments. As a new CEO and with the new ExCo, we definitely want to keep doing that. Also the fact that we maintain our EUR 100 million EBIT increase in 2017 versus 2016. I think the top priority, and there's many priorities and many things to work on, it is definitely to keep delivering on the plan that we outlined earlier in the year.
If I could follow up on that, though, could you help me understand then where shareholders fall in the list of priorities? Because I know that in your press releases today, it sounds like you're making a good, honest effort to repair relations with them. I wanted to hear where that falls in your priorities as well.
I think Antony has outlined the whole plan to do that. Obviously, it is a key stakeholder in the company. In my opinion, one of the best ways to please shareholders is giving great results, that's what we are pushing for. There's a number of priorities, I think by showing performance is probably the best tribute to the shareholders.
Great. All right. Thank you very much.
Thank you so much. Our next question comes from Patrick Lambert of Raymond James. Sir, you now have an open line.
Hey, good morning, everybody. Thanks for taking my two questions. The first one is again on EBIT guidance, EUR 100 million improvement. What's your view, and I'm sorry to ask that again, I think you're trying to get away from it. The PIP program, if I remember correctly, was about EUR 70 million last year.
A bit up from 2015. How do you see it in 2017? How does it fit with the EUR 100 million guidance in 2017? First question. Second, a more commercial marine business. It seems to me that the order book for 2017-2018 looks a bit better than 2016-2017. Could you comment a bit on your view on not just H2, but 2018 versus 2017, as you see it in terms of both maintenance and new builds in the marine business? Thanks.
All right. Thank you. Not sure if I fully grasped your question about the EUR 70 million last year and EUR 100 million this year. By the way, I'm not trying to get away from the EUR 100 million. On the contrary, I think I went elaborate on the steps for it because it is a key priority for us. Not sure how much more I can be additive to that point. If you go to Marine and Protective Coatings, specifically, your question was around marine. Yes, I think we see the order book stabilizing, but of course, it is at a different level than it was before. In fact, I would have to check exactly on what the comparisons are quarter by quarter in 2018 and 2017 for the order books.
I do know that in marine, the repair and maintenance was seen as a potential uplift, and that legislation seems to be just being implemented slower. Hence, the contingencies that we put in to deliver as a company, to deliver on our bottom line in other parts of the company.
Thank you.
Thank you so much. Our next question now comes from Mutlu Gundogan of ABN AMRO. You now have an open line.
Yes. Good morning. Two questions. The first is on restructuring charges. Maëlys, I remember that you said that the guidance for 2017 will be roughly EUR 70 million. Can you tell us what the amount of charges is year to date that is in the reported EBITDA number? The second question is also on the Marine and Protective Coatings. Can you tell us where you think we stand in the cycle as the comparison base seems to be getting easier from this point, and we are seeing a sequential improvement.
On the restructuring, Mutlu, as we mentioned in our guidance, we continue to see the weakening, which is probably longer that we forecasted, but the comparison, in fact, will indeed be more favorable in the second half.
Right. Maybe coming back to the restructuring charge, because I didn't fully understand what you were saying. What I remembered is that you were guiding for EUR 70 million, so that was definitely at the low end of the range. Are you saying that because of the designing of the two new businesses, we will see more restructuring charges this year?
As I said, the EUR 70 million is what we guided as the normal continuous improvement. We'll have to see what measure we need to take, if any, in the new design. This is ongoing at the moment.
Right. Okay. Thank you.
Thank you very much. The next question comes from Jeff Harte of UBS. You now have an open line.
Good morning. Thank you very much for the presentation. Just had two very quick clarification questions. I just wanted to check, you said that Mr. Werner Fuhrmann, who is running the Specialty Chemicals business, would be running it through the separation. Does that mean that he won't be staying beyond it becoming an independent company and someone else will take over running the business? Also, in the cash flow, you had an increase in provisions of EUR 85 million in the second quarter. I just wonder if you could outline what those were related to, please.
Let me take the question of Werner Fuhrmann, then Maëlys or Hans, if you can take the cash question. Werner Fuhrmann is rejoining the Executive Committee. I probably was understating how enthusiastic I am about this because he is the man who led that business. When I took over from him, it felt a bit like in soccer terms, just having to kick the ball in. Having him back in the team is actually pretty important to me. Werner joins the team definitely through the separation. It depends on the scenarios and whoever is the ownership, if it's in the dual track, whatever the outcomes is. I think that's then a decision I believe that has to be taken by other people.
Werner is definitely there to take the businesses that he has spent a lot of time in and really is the father of, to basically bring that to the separation, and then it's for him to decide what the options are then. On the cash, bring it back to Hans and Maëlys.
This is Hans De Vriese. On the changes in provisions in the second quarter, the main driver is the fact that we see lower additions to provisions in this quarter. Last year was driven by insurance provisions that were added in that specific quarter, and that's the main driver for the difference amongst some smaller other things. We also saw some higher withdrawals in the second quarter this year.
Thank you.
Thank you. Our next question comes from Laurent Favre of ISI. You now have an open line.
Yes. Good morning, all. I've got two questions, please. The first one is for Mr. Burgmans. In the EGM, I guess announcement or the announcement that you will convene an EGM, you're mentioning a discussion point on the PPG situation. I was wondering if you could tell us in your own words what you mean by further explanation of how Akzo handled the situation with PPG. Do you think that something has been missing in that handling? I'm wondering what you can tell us now ahead of the EGM being convened. The second question is actually for Thierry.
Is there anything you can say on the development on the separation of chemicals in terms of interest you have received that could lead to a change of strategy, i.e., less interest for the whole division, more interest for parts of division, perhaps reconsidering the breakup of the chemical division itself in the separation? Thank you.
Yes. I'll take the question then on the EGM. Indeed, we're going to discuss this subject. You know the verdict of the court, where we got a clear support from the judge in his verdict. One of the elements was that he suggested that we continue to work to improve relationships with our shareholders. In response to that, as I said in my short introduction, we did a survey to see exactly what the various issues were. One of the issues which came up was indeed that, not all, but there was a substantial part of our shareholders who would like to have some further explanation. Because one way or the other, in what way, with all the noise which was going on at the time, they felt that maybe they should be filled in a little bit more.
That is exactly what we're going to do on the EGM. You don't mind if I don't now, at this moment, try to deal with that issue. I think we'll do that on September 8th. I promise you, we'll give you a further full explanation of events which took place, and I'll give you an insight of the way the thinking went and the reason why we came to the decisions which we took.
On the question you had around the separation process to create this Paints & Coatings business and the Specialty Chemicals business. As I outlined, we are on track timing-wise. That's the first part of it. Lots of due diligence work, advisors, banks, et cetera, that is going on. The dual track is still what's on the table. We've already outlined early on that it would be the decision between one piece or in some pieces, but not many pieces, and that it has been unchanged. In fact, one of the reasons for the timing for approval is we want to be certain with all the incoming data on what is now the options and what is the pros and cons of those options before we go to shareholder approval.
On the interest, definitely when the news came out, originally, there was quite some interest in people interested in parts, et cetera. That's not surprising because it is a top quartile business in many of the KPIs and in the market that it operates in. Don't want to necessarily comment on the interested parties, et cetera, but it's pretty clear that there is in the background a significant burst of interest, and that we will update in the EGM meeting when we get to that point.
We've got one more question on the line just before we conclude the call.
All right. Thank you so much. Our next question now comes from Martin Evans of JP Morgan. You now have an open line.
Yeah. Hi, this is actually Chetan Udeshi on behalf of Martin Evans. I wanted to follow up on these comments around how that is impacting the price development in Q2. Decorative Paints, it was 9%.
2016 was the 6%. It's always more quarter, therefore, a small variation makes it a big number. We had the one that it shouldn't be the trend for the year. What is important that indeed you continue to see this positive momentum.
Your participation. I am also looking forward to engage more in the future. This is kind of the first step. I'm looking forward to it, and thank you for participating in this call. Lloyd, back to you.
Thank you, everybody, for joining us. If you have any further questions, contact investor relations. We're happy to assist in any Q&A you have further. Thank you, and bye-bye.
That concludes today's conference. Thank you all for participating. You may now disconnect.