Welcome and thank you all for standing by. At this time, all participants are in a listen only mode. After the discussion, we will conduct a question and answer session. This call is being recorded. If you have any objections, you may disconnect at this point.
Now I will turn the meeting over to your host, Mr. Lloyd Midwinter. Sir, you may begin.
Hello, and welcome to the actionable investor update for the half year and Q2 2017. I'm Lloyd Midwinter, Director, Investor Relations. Today, our Chairman, Anthony Bergman, will start with a brief update regarding shareholder engagement initiatives Then our CEO, Thierry Van Aanker and CFO, Meilez 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 de Melon 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, axonobel.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 now hand over to Anthony Bergman, who will start on Slide 3 of the presentation.
Thank you, Lloyd. Good morning, everyone, and 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 have more than twice the number of meetings and calls with investors compared to the same month last year. And 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 Axol have thoroughly reviewed and considered the feedback received from shareholders in order to determine appropriate additional next steps.
So I'm now announcing the next steps. The company today announces a number of initiatives with purpose of improving shareholder relation. We will conduct a program of meetings to introduce our new CEO, Thierry Van Langer. On September 8, 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 JPMorgan Casanov 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. And 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 accelerate its growth and value creation. I now hand over to Thierry, who will provide an update on our strategy announced in April.
Thank you, Anthony, 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 5 of this presentation. We will continue to deliver on our plans for the creation of 2 focused highly performing businesses, Paints and 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 and our commitments for 2017 and the years to come, including increased shareholder returns. Turning now to Slide 6. 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 demand from key markets and for growing product lines, the launch of premium decorative paints product lines in high grow markets and 2 targeted acquisitions to strengthen our Performance Coatings business.
Today, we also announced a new structure for our Executive Committee, including the appointment of Rud 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 2 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 Axolobelt 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 8. During the past 2 years, we have delivered year on year cost savings of more than EUR 200,000,000 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 twenty seventeen, and we expect to generate savings of €150,000,000 to €200,000,000 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 higher end of our guidance. So 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 twenty seventeen, 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 7th 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 Executive Paints in Continental Europe, but the UK 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. Now turning to Slide 11. We continue delivering growth while dealing with short term market headwinds in some segments.
During the first half year twenty seventeen, 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 €2.4 per share. In quarter 2 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 plant maintenance turnaround in industrial chemicals. Adjusted EPS was up 2% at €1.35 per share. Following a record performance for AkzoNobel in the Q1 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 Flexcre Technologies Limited and an agreement to acquire French manufacturer Diddatech. 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 2, 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 7 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 Q2 of 2017. This continues 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 Maileys, who will guide you through our financial results in more detail.
Thank you, Thierry, and good morning to everyone on the call. Starting with the summary on Slide 13. Volumes for the first half year twenty seventeen were 2% higher, driven by decorative paints and specialty chemicals, and revenue was up 4%, including for all business areas. Acquired Industrial Coating business contributed 2% growth. EBIT was up 1% at EUR 837,000,000 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 13,000,000. These factors collectively impacted profitability, which was at 11.2% versus 11.6% last year and were 14.8% compared to 15.1% in 2016. We are taking, as Thierry mentioned, our property is measured, to deal with higher raw material prices in an inflationary environment. Operating income was impacted by exceptional identified items. Now turning to some more details on Slide 14, where you find the bridge.
EBIT increased 1% to EUR 837,000,000, 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 Coating 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 continued positively, particularly partly offset by lower volumes for Performance Coatings due to ongoing weakness in the marine and oil and gas industry and the management's turnaround in industrial chemicals.
Adverse price mix overall was mostly as a result of change in geography and product mix for decorative paints, and we go faster in some market than other. Price mix was positive for Specialty Chemicals and Flat for Performance Coatings. The other category in this chart includes productivity improvements from our ALK 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 $200,000,000 for the full year to at least offset region other cost inflation. Also included here, raw material price were higher compared with the same period in 2016.
We are taking appropriate measures to deal with this higher raw material prices in an inflationary environment. This measure whereby due to 2017, all would be 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 the unitified items of $23,000,000 with respect to the sale of assets. In the first half twenty seventeen, operating income was negatively impacted by an exceptional identified items, totaling EUR 20,000,000 mainly related to the implementation of the new strategy to create 2 focused high performing businesses as well as legal and antitrust related items.
I'll 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 UK was affected by lower consumer confidence. Revenue increased 3% due to higher volumes, partly offset by adverse price mix effects, which was mainly mix as we go faster in some market than other.
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 pricemix effects and higher than anticipated raw material costs. The latter had a greater impact on Q2 to 2017. 9.6% in 2016. NY was up 13.5% compared to 12.3% in the previous year.
During Q2 20 17, decorative paints continued to deliver higher volumes. However, EBIT and ROTH were adversely impacted by unfavorable pricemix effect and higher than anticipated raw material costs, partially offset by cost measures. Appropriate measures are being taken to address these higher raw material prices. Also, 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 twenty seventeen, driven by the acquired Industrial Coating 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 Performance Coatings and pricemix 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 measure to address this higher raw material prices, although as we mentioned for decorative paints, it can take several quarter before the necessary impact is fully compensated. Loss 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 lower volume for Marine and Protective and the integration of the acquired Industrial Coating Business. There was minimal EBIT contribution for the acquisition as we integrate the operation and transfer production volume to existing nearby ex Sonobar manufacturing facility.
The full profitability of the acquisition will be realized by the end of 2018. Now turning to Specialty Chemicals as shown on Slide 17. During the first half year twenty 17, 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 pricemix 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 price mix development were offset by the impact of the planned maintenance turnaround in Industrial Chemical, which impacted EBIT by around minus €13,000,000 If we exclude this impact, EBIT would have increased 7% for Q2 2017. Gross was 13.9% versus 14.2% in 20 16, and Royal was at 18% compared to 17.1% last year. Slide summarizing the financial results for 22 2017 are available in the appendix to this presentation. Moving on to cash flows on Slide 18.
During the first half twenty seventeen, free cash flow was an outlook of $256,000,000 versus an outflow of $161,000,000 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 Sandri provision. These factors were partly offset by higher EBITDA, lower pension top up payments and lower interest paid. Capital expenditure and operating working versus EUR 1,600,000,000 versus EUR 1,600,000,000 last year and EUR 1,300,000,000 at year end 2016. The increase during the first half year is mainly due to the pension top end payment, most of which were paid in Q1 2017, dividend paid and the share repurchase program of EUR 160,000,000 concluded in April.
The IFRS 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 €800,000,000 versus €1,000,000,000 at year end 2016. The reduction during the first half year was the net effect of top up payments predominantly into certain UK pension plans, higher asset returns and lower inflation, partly offset by lower discount rates in key countries and derisking of pension liability through noncash buy in transaction of GBP 262,000,000 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, Maile. 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, Wattenfell, 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. And 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 the oil and gas industries for the rest of the year.
We have improved our ability to respond to developments in our markets and continued 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 100,000,000 hires in 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 underwrite for completion by April 2018, resulting in 2 strong and focused businesses.
I'll now hand over to Lloyd for information about upcoming events and the Q and A session.
Thank you, Thierry. Before we start the Q and A session, I would like to draw your attention to some upcoming events shown on Slide 24. We hold an EGM on September 8 and report results for Q3 on October 18. 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 2 so others can participate.
Operator, please start the Q and A session.
Absolutely. We will now For our first question, it comes from Mr. Tom Rigosworth 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. Are you how much has been delivered in the first half from that EUR 150,000,000 to EUR 200,000,000 that you say? And then and so and therefore and what is the expected real effect in the second half?
And the second question is on the executive committee setup. Obviously, you've noted that you're going to realign the bonus 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. So maybe on the first question for the continuous improvement, Marillise, do you want to take that question?
Yes. So as we mentioned, the cost savings that we have seen in the first half are quite similar to the one of last year, so around EUR 100,000,000. And for the full year, we had a program of EUR 150,000,000 to EUR 200,000,000 taking into account the higher raw material price, we are taking additional measure to be more on the EUR 200,000,000 level.
Then on the second question, I think you were asking more details on the Executive Committee changes. I'm very happy with the changes we have and with the team in place. These are all people who know the company. And in fact, very happy that Wendell Furman, who actually brought the success of Specialty Chemicals, has come back to lead the business to a generation, which is very good. The change of the executive committee, we are all on board with the strategy.
This is now all by accelerating delivery of bottom line. So, Rit Joosten will become the Chief Operating Officer and will lead all the paints and coatings business aspects of it. That's what we really want to get in front of the customers, drive growth and basically share and learn much more around those businesses and leveraging across those businesses. So that's all what Rich 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.
And 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 operation, manufacturing, supply chain and take that to a next level. So all of the changes you see is create stability and people who know the company and their markets, hence we're in the firm on coming back. And at the same time, be it all around execution and driving the bottom line as we promised on April 2019.
Thank you very much.
Thank you. Our next question comes from Paul Walsh from Morgan Stanley. Mr. Paul Walsh, you may now proceed.
Yes, thanks a lot guys. Good morning Thierry, Miley, Lloyd. Thanks for taking my two questions. The first question was just around pricing. Price mix was negative 3% in Deco in Q2.
Maile, 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 some of your other competitors were 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? And then my second question is in relation to the €100,000,000 EBIT guidance.
I sort of run the numbers and certainly if I benchmark it again consensus, looks to me like sticking with that guidance implies an acceleration in year on year EBIT growth to about 15% in the second half to get there. What are the contributing factors to that in terms of such a healthy improvement in second half profitability, please?
I see price increases happening. Although I think that is a bit more viscous and that may still be ramping up over the 3rd Q4. But there, of course, the big impact is off by protective and marine that basically impacts the numbers there. So that's around the price mix. Mauricio, I don't know if you want to add something to that point.
No? All right. So second point is around the guidance and what you're going to do on the improvement. Your capital is almost fixed. The underlying EBIT increase is 13%.
Let's get to those numbers to be exact. So 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 Q2 was probably the one where you have the impact of the numbers, but not yet the price part. So it's kind of the pinch point to that extent. And I've just explained that specialty chemicals had is on a roll.
There was a one time effect in the second quarter with scheduled turnaround in our Rotterdam industrial chemicals complex, which is a cluster in a number of companies that becomes a mega shutdown. If you exclude that onetime item and you look at the one that was not the case, that business will deliver totally according to plan on volume, everything. So 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 momentum of Deco in June 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, in the second half.
So that adds up to it. And then yes, there is a significant cost containment that we had rolled out and we actually reemphasized 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. And we basically also are looking at constraining hiring this year for everything that's not critical for the bottom line delivery of 2017. And 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.
So 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. Good
morning, everybody. Tony Jones, Redburn in London. Thank you for taking my two questions. So firstly, with so much change, management change, can you be explicit that nothing from the strategic plan as detailed by the prior CEO has or will change? And maybe specifically addressing the potential for major acquisitions by AXO?
And then back to the raw material costs. Appreciate the detail, Thierry, in terms of the timing mismatch being probably more acute in Q2. But 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. So 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.
Yes. So answering your first question, the way that Tom operated the company was transparent and inclusive. The people who are on the current executive committee, execution. So there's no change in strategy whatsoever. In fact, everything is geared toward delivering the results within the strategy that was outlined.
So that is on the first question. On the cost inflation for the raw materials, I think the Q2 was indeed more of a pinch point. I think that's as I said in chemicals, we have offset it already by the pricing in Deco. Rygiosen, who is running that business up till today, gets in deep in that direction. And then 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.
And again, Marine and Protective Coatings have their own dynamics. I also skipped basically a part on acquisitions. We have done 2 specific acquisitions that are small in size, but are very much targeted to open up markets for us. And 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 of 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, quite high margin. And very important in Q3, UK Deco. The raw material situation, I think, will be more difficult clearly in Q3 than Q4, even if it's better than Q2. So I'm just wondering about Q3 itself. How confident are you can start moving towards that second half guidance that you're now inferring up 13%?
And then specifically on UK 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's strong UK 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's still being strong. So 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 UK at the moment, but just how the UK Deco business is performing as well? Thank you.
All right. First of all, on where we are, I mean, 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. So not sure if it's value to repeat that. The Q3, I mean, there is a dynamic, so obviously that would be a stronger quarter than the 2nd quarter.
Obviously, otherwise that would make no sense with the yearly guidance. But coming back on your question on the UK, we the market, obviously, the consumer confidence, specifically in the non food retail in the UK is down. I mean, there's a number of external metrics that clearly indicate that. So the whole market is impacted. We have not lost any share in that market.
And yes, maybe the AkzoNobel style is a bit more introverted than some others, but that doesn't take away from the results in the market.
Yes. If you also I just mentioned, you've seen recent IMF forecast clearly say that they indeed see lower trending in the UK and that again what we're seeing. So we are still maintaining our market share. So it's more the trend of the market we're outlining.
Okay.
All right. Thank you. Our next question comes from Jeremy Rodenius of Bernstein. Sir, you may proceed.
It's Jeremy Rodenius at Bernstein.
The first question I have
is about raw materials. Your predecessor had mentioned in analyst meetings that he thought pricing versus raw materials, which had different prices would offset raw materials for the full year. So that is increases late in the year would be able to catch up. It sounds like you're talking much more cautiously about the timing to increase prices. So I mean, 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 that would be complete offset?
And then 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. And so 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 we the raw material impact is higher, I think, than we anticipate in the beginning of the year. In addition to that, there isn't 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.
So we try to offset that as you would expect in a business by the other means. So 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. And as a new CEO and with the new Exco, we definitely want to keep doing that. Hence also the fact that we maintain our EUR 100,000,000 EBIT increase in 2017 versus 2016. So I think the top priority and there's many priorities and many things to work on, but it is definitely to keep delivering on the plan that we outlined earlier in the year.
And if I could follow-up on that
though, I'd like 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
to them. So I wanted
to hear where that falls in your priorities as well.
I think Anthony has outlined the whole plan to do that. Obviously, it is a key stakeholder in the company. But in my opinion, one of the best ways to please shareholders is giving great results, and that's what we are pushing for. So it is there's a number of priorities, but I think by showing performance is probably the best tribute to shareholders.
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.
Good morning, everybody. Thanks for taking my two questions. The first one is again on EBIT guidance, EUR 100 million improvement. Can you what's your view and I'm sorry to ask that again, I think you're trying to get away from it, but the P program, if I remember correctly, it was about EUR 70,000,000 last year, EBIT from 2015. How do you see it in 2017?
And how does it fit with the €100,000,000 guidance in 2017? First question. And second, a more commercial marine business. It seems to me that the order book for 20 17, 2018 looks a bit better than 2016, 2017. Could you comment a bit on maintenance, your view on not just H2, but 2018 versus 2017 as you see it in terms of both maintenance and new build in the marine business?
Thanks.
All right. Thank you. Not sure if I fully grasp your question about the EUR 70,000,000 last year and EUR 100,000,000 this year, But and by the way, I'm not trying to get away from the SEK 100,000,000. On the contrary, I think I went elaborate on the statutory because it is a key priority for us. So 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. And 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, I mean, 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 Muttberg Gundogan of ABN AMRO. You now have an open line.
Yes, good morning. Two questions. The first is on restructuring charges. Maileys, I remember that you said that the guidance for 2017 will be roughly EUR 70,000,000. You tell us what the amount of charges is year to date that is in the reported EBITDA number?
And then 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, Jundoon, though, 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. And then maybe coming back to the restructuring charge because I didn't fully understand what you were saying. So what I remember is that you were guiding for EUR 70,000,000, so that was definitely at the low end of the range. Are you saying that because of the designing of the 2 new businesses, we will see more restructuring charges this year?
As I said, the EUR 70,000,000 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.
The next question comes from Jeff Haas of UBS. You now have an open mind.
Good morning and thank you very much for the presentation. Just had 2 very quick clarification questions. I just wanted to check, you said that Mr. Vernon Fuhrman, who's running the Specialty Chemicals business, would be running it through the separation. Does that mean that he won't be staying beyond becoming an independent company and someone else will take over running the business?
And also that the in the cash flow, you have an increase in provisions of EUR 85,000,000 in the second quarter. I was wondering if you could really outline what those are related to, please?
Yes. So let me take a question on Werner Furman and then Malise, if you can take the cash question. Werner Furman is rejoining the Executive Committee, I probably was understating how enthusiastic I am about this because he is the man who led that business. And when I took over from him, it felt a bit like in soccer terms just having to kick the ball in. So having that him back in the team is actually pretty important to me.
Werner joins the team, definitely through the separation and then it depends on the scenarios and whoever is the ownership, if it's in the dual track, whatever the outcome is, I think that's then a decision, I believe, that has to be taken by other people. But Werner is definitely there to take the business 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 there. On the cash, bringing it back to Hans and Maris. Yes, this is Hans and Brise. 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, it 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 Q2 this year.
Thank you.
Thank you. Our next question comes from Laurent Spire of ISI. You now have an open line.
Yes, good morning all. I've got two questions, please. The first one is for Mr. Borkmans. In the EGM, I guess, announcement or the announcement that you will convene in 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 Axo 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. And the second question is actually for Thierry. Is there anything you can say on the developments 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 EDM. 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. But one of the elements was that he suggested that we continue to work to improve relationships with our shareholders.
So in response to that, as I said in my short introduction, we did a survey to see exactly what the various issues were. And 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 one 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. And that is exactly what we're going to do in 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 8. And our commercial will 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.
And on the question you had around the separation process to create the Faints and Coatings business and the Performance Chemicals business. As I outlined, we are on track timing wise, so that's the first part of it. Lots of due diligence work, advisers, banks, etcetera, that is going on. The dual track is still what's on the table. I think we've already outlined early on that it would be the decision between 1 piece or in some pieces but not many pieces and that this 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, etcetera, etcetera. So and that's not surprising because it is a top quartile business in many of the KPIs and in the markets that it operates in. So I don't want to necessarily comment on the interested parties, etcetera, but it's pretty clear that there is in the background a significant wealth and interest and that we will update in the AGM meeting when we get to that point.
I think we've got one more question on the line just to before we conclude the call.
All right. Thank you so much. Our next question now comes from Martin Evans of JPMorgan. You now have an open line.
Yes. Hi. This is actually Chetan Udeshi on behalf of Martin. I wanted to follow-up on this comments around how that impacted the price development in Q2. But in decorative paints, it was 9%.
It's clearly
2016 was a 6%. It's always small quarter. Therefore, a small variation make it as a big number. So we added the reward that you should be the trend for the year. But what is important that indeed you continue to see this positive momentum for the Your participation, I'm
also looking forward to engage more in the future. So this is kind of the first step. So I'm looking forward to it, and thank you for participating in this call. And Lloyd, back to you.
Thank you, everybody. We wish to join us next time. If you have any further questions, please contact Investor Relations. We're happy to assist in any Q and A you have further. Thank you and bye bye.
And that concludes today's conference. Thank you all for participating. You may now disconnect.