Press star and then one. This call is being recorded. If you have any objections, you may disconnect at this point. I turn the meeting over to your host, Mr. Lloyd Midwinter. Sir, you may begin.
Good morning and welcome to the Akzo Nobel Q3 2016 Investor Update Conference Call. I'm Lloyd Midwinter, Director of Investor Relations. Today, our CFO, Maëlys Castella, will guide you through our results for the quarter. We will refer to a results 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 presentation. For additional information, please contact investor relations. Before we start, I would like to remind you about the safe harbor statement at the back of the presentation. Please note this statement is also applicable to the conference call and the answers to your questions. I'll hand over to Maëlys, who will start on slide four of the presentation.
Thank you, Lloyd. Good morning, everyone. In the third quarter of 2016, we achieved volume growth in Decorative Paints and Specialty Chemicals, further growth in profitability over and for all business areas. Revenue was down 4% due to adverse currency and price mix effects. EBIT was up 1% at EUR 442 million, operating income 4% higher at EUR 454 million, positively impacted by incidental items. Our return on sale and return of investment improved. Net income attributable to shareholders was EUR 285 million. The cash generation continued to improve, with net cash inflow from operating activity up 3% at EUR 600 million. We increased the interim dividend by 6% to EUR 0.37 per share. Turning now to slide five. Our Q3 2016 represents another quarter of improved financial performance. Profitability improved further despite adverse currency and price mix effects and challenging conditions in several countries and segments.
Volume growth in Decorative Paints and Specialty Chemicals was offset by lower volume in Performance Coatings, revenue was down 4% due to adverse currency effect and price mix. EBIT increased to EUR 442 million versus EUR 432 million last year, reflecting continuous improvement initiatives and lower costs, partly offset by adverse currency effects. Profitability improved further with return on sale up 70 basis points at 12.3% versus 11.6% in 2015, return on investment improved 220 basis points higher at 15.2% compared to 13% last year. Overall financial results are shown now on slide seven. During Q3 2016, we delivered higher profit driven by continuous improvement initiatives and lower costs. Revenue was down 4% due to adverse currency and price mix effect. Volumes grew in Decorative Paints and Specialty Chemicals, while volumes were flat overall.
EBIT was up 1% at EUR 442 million, with continuous improvement initiatives and lower costs partly offset by adverse currency effects. Restructuring costs during the quarter was much lower than the same period in 2015, although our guidance remains 0.5%-1% of revenue over the medium term. We expect restructuring costs for the full year to be around the same level as 2015, with around half of this expected to take place in Q4. Operating income was up 4% at EUR 454 million. Operating income was positively impacted by primarily non-cash incidental items, with a net effect of EUR 12 million, including adjustments to provision, amongst other post-retirement benefits and asset impairments. The incidental items impacted operating income of Decorative Paints, Performance Coatings, and the operating income in other activities. Return on Sales improved to 12.3% from 11.6% last year, and ROI increased to 15.2% versus 13% in 2015.
Slide eight shows the quarterly trend for volume and price mix for Akzo Nobel and each of the business areas. During Q3 2016, volumes were flat overall, while volume growth in Decorative Paints and Specialty Chemicals. Volumes were up 3% for Decorative Paints and 1% for Specialty Chemicals, while volumes were down 2% for Performance Coatings, affected by adverse conditions in the marine and oil and gas industries. Demand differed per region. Deflationary pressures continue in line with the previous quarter. This is particularly the case for Specialty Chemicals, where price mix was negative 3% due to price deflation in several markets. Deflationary pressures are expected to continue in Q4. Price mix also adversely impacted Performance Coatings by 2% and was 1% lower for Decorative Paints, although this was mostly mix effect. I will now run through some highlights and growth initiatives for each of the business areas.
Let me start with Decorative Paints on slide nine. Volumes increased 3%, mainly due to positive development in Asia and the Europe, Middle East, and Africa region, while volumes continue to be down in Latin America. Demand trends differ per country in EMEA, and uncertainty continues in some market. Currency volatility remained, including for the pound sterling. In Latin America, market conditions remain challenging due to the economic instability and currency devaluation. Positive demand trends in many Asian markets continue, and in China, volumes were positive despite continued challenging condition in the construction markets. Revenue was down 3%, mainly due to unfavorable currency effect, including the pound sterling. EBIT was up 2%, mainly due to higher volumes and lower cost, partly offset by unfavorable currency. Operating income was also positively impacted by incidental items of EUR 9 million.
Return on Sales increased to 12% from 11.5%, and ROI improved to 12.5% versus 10.6% last year. We recently launched our 2017 Colour of the Year, which is a Denim Drift this year, to help inspire customers to make confident color choices and drive growth for our businesses. Highlights for Performance Coatings are shown now on slide 10. Revenue was down 6% due to unfavorable currencies, lower volumes, and adverse price mix effects. Volumes were 2% lower, affected by adverse condition in the marine and oil and gas industries. Demand trends differ per segment and region. Volumes in Marine Coatings were impacted by the slowdown of the newbuild activity in Asia, as well as maintenance and dry docking. The outlook for the marine industry remains challenging. Protective Coatings volume remained robust related to a strong project backlog, despite some headwind in the oil and gas industry.
Volumes were up for Automotive Coatings and Specialty Coatings, as well as for Powder Coatings, while volume development were mixed per region for wood and metal coatings. Profitability continued to improve despite lower volume. ROS was up at 14.2% versus 14.1% in 2015, and return on investment was 30.9% compared to 26.5% last year. EBIT was down with continuous improvement initiatives and lower costs more than offset by adverse currencies and lower volumes. Operating income was also negatively impacted by incidental items of EUR 7 million. The intended acquisition of BASF industrial coatings business is expected to be completed towards the end of 2016. We recently broke the ground on a Powder Coatings plant in Mumbai that will bring us closer to our customers and provide several innovative lines, including products for pipes. Moving now to Specialty Chemicals on slide 11.
Volumes were 1% higher with positive developments, especially in industrial chemicals, partly offset by lower demand in the oil-related segments. Volume for industrial chemicals were up due to increased demand and higher supply chain availability in Frankfurt and Rotterdam. Revenue was down 3%, mainly to price deflation in several markets. EBIT and operating income were up 3%, mostly due to improved volume and operational efficiency. Return on Sales increased to 14% compared to 13.2% in 2015, and ROI improved to 17.2% versus 16.4% last year. Our Specialty Chemicals business recently launched an essential ingredient for outdoor cleaning products that successfully meet stringent US EPA environmental standards. I will now move to the financial review on slide 13. In Q3 2016, we improved financial performance for another consecutive quarter. Profits and margin increased with EBIT, operating income, Return on Sales, Return on Investment, all higher than last year.
In terms of shareholder returns, net income attributable to shareholders was flat at EUR 285 million, and adjusted EPS was EUR 1.20 per share. Net cash from operating activity was up 3% at EUR 600 million. Cash discipline continues with CapEx around 4% of revenue and working cashflow lower than last year at EUR 1.8 billion, although slightly higher as a percentage of revenue. We are delivering on our improved programs and are maintaining a strong cash discipline, and we decided to increase the interim dividend by 6% to EUR 0.37 per share. Moving now to slide 14. Free cash flow generation improved 11% versus Q3 last year, demonstrating the positive impact of higher operating results with EBITDA margin of 16.5% versus 15.7% last year, combined with continued discipline on CapEx, working capital, and interest paid. Interest continued to reduce thanks to the redemption of ICI ten debt and the refinancing at a 1.125% low coupon.
The year-to-date effective tax rate was 28%. Free cash flow from operation after CapEx and pension top-up payment improved 11% to EUR 469 million versus EUR 422 million in Q3 2015. On September 30, 2016, the net debt was EUR 1.1 billion, down 35% on the same period last year. Turning now to slide 15. During Q3, further de-risking of pension liabilities, including an additional non-cash buy-in transaction for GBP 1.7 billion related to the ICI Pension Fund, means a total of GBP 2.6 billion of pension liability have been covered by non-cash buy-in during 2016. The recent buy-in do not impact the agreed top-up schedule we communicated earlier this year. Since 2014, a total of GBP 8.2 billion pension liability has been covered by non-cash buy-in.
The cumulative effect of de-risking activities mean around 80% of interest rates and inflation risk and almost 60% of longevity risk is now covered by insurance contracts and hedging. Most of the buy-in has been related to the ICI Pension Fund, so the percentage will be higher for this scheme. This activity will further reduce volatility and uncertainty related to the defined benefit obligation and associated top-up schedule. We'll continue to manage actively our pension liability. If we look at the impact according to IAS 19, you have it shown on slide 16.
An increase in IAS 19 deficit was mostly the result of the de-risking of pension liability through the non-cash buy-in transaction I mentioned to you related to the ICI Pension Fund with a total net impact of minus EUR 391 million, combined with lower discount rates in key country and higher inflation, partly offset by higher asset returns. Moving now to slide 17 about our dividend policy, which we mean to pay a stable to rising dividend. In this quarter, as I mentioned, we decided to increase the interim dividend by 6% to EUR 0.37 per share compared to EUR 0.35 last year. Slide 19 includes some recent events highlighting number of areas. Building on the work we are doing through our Human Cities initiative, we work with several partners to help improve the lives of residents in Quito, Ecuador.
The launch of Aquasilk, an innovation knitted waterborne anti-scuff coating with superior hardness and excellent clarity, is designed to make it easier for Chinese furniture industry to transition to more sustainable waterborne coatings. Akzo Nobel, DSM, Google, and Philips joined force in a long-term agreement to source power from renewable energy project for part of their operation in the Netherlands. Turning to slide 20 for some concluding remarks. During Q3 2016, we achieved further growth in profitability with returns up in all business area and positive volume development in Decorative Paints and Specialty Chemicals. EBIT and operating income were higher. The net income to shareholder was EUR 285 million, and the net cash inflow for operating activity increased 3%. We increased our interim dividend by 6%, and our outlook is unchanged. The market environment remains uncertain, with challenging condition in several country and segments.
Deflationary pressure and currency headwinds are expected to continue. We maintain our financial guidance and focus remain on driving continuous improvement and organic growth. This concludes our formal presentation, and we will now be happy to take your questions. Please limit your number of question to maximum two so others can participate. Thank you.
We will now begin the question and answer session. If you would like to ask a question, please press star and then one. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To cancel your request, please press star two. Our first question comes from Sir Paul Walsh. Sir, you may begin.
Yeah, thanks. Morning, guys. It's Paul Walsh from Morgan Stanley. I had obviously two questions to fit with what you've just asked, Maëlys. First, on cash flow. What are you going to do with the cash flow? I guess you could grow the dividend more aggressively than you have, but are you keeping capital aside for M&A, and how should we think about that moving forwards from here? The second question I had was just around the rate of profit growth and how you keep that momentum going. I think you mentioned PIP costs are going to be a 50% fall in the fourth quarter. Do you think you can still grow underlying earnings in the fourth quarter? Or is it getting tougher, i.e., what additionally is being done at the group level to continue to combat what are relatively lackluster markets? Thank you.
Thank you, Paul, for your question. First on the cash flow, as you've seen during this quarter, we continue to improve. This is a strong reflection of our strategy to both drive the continuous improvement, the growth, and also strong discipline maintained on our working capital and also our capital expenditure. This cash flow has enabled us to reduce the debt further. If you've seen our debt at the end of the quarter was EUR 1.1 billion. As we said before, we are focusing to use our strong balance sheet first to grow the business organically, but also to consider bolt-on acquisition. We have announced at the beginning of the year the acquisition of the BASF coatings business.
As we mentioned, we will be closing it by the end of the quarter, and we are again, considering other bolt-on to use this cash flow. The dividend is also an important part of the way we return cash to shareholders, and that's why you have seen a further increase of our interim dividend at 6%. On your second question about the performance and the growth. You have seen in this quarter further growth, in particular in Decorative Paints, the fourth quarter of growth in a row. Chemical also has posted growth and lower growth in Performance Coatings, mainly due to challenging conditions. As you know, for Q4 is traditionally a small quarter for Akzo Nobel due to the seasonality effect.
I also mentioned to you that we will probably see higher restructuring costs in this last quarter, even though overall we mentioned now that restructuring costs stay at a level between 0.5%-1% and those restructuring costs are mostly targeted in area where we see challenging condition, in particular in the Marine Coatings business this year or in also to support the continuous transformation we are doing in our global business services or functional transformation effort.
Just coming back to that last one, is there any reason to believe why the underlying progress can't continue? Forgetting about the cost of restructuring, on an underlying basis, are you still expecting to make progress?
As we say, we continue to drive our continuous improvement. The progress, we continue to focus on that, and this will remain the focus for the next year also.
Okay. Thank you very much.
Thank you, Mr. Walsh. The next question comes from James Knight. Sir, your line now is open.
Morning. Actually picking up a couple of points from Paul's questions. Firstly, can you quantify or give some dimension to the degree of cost-cutting charges you expect in the fourth quarter, and how that compares with the fourth quarter last year, just so we can get an idea of the dynamic? Secondly, we've seen a lot of bolt-on activity in coatings and paints year-to-date, which Akzo hasn't played in. It's made the bigger deal. What's stopping the activity there? Do you think the multiples being offered there are still too high? Thank you.
Well, on the cost cutting, as I mentioned, we are really now on a phase of continuous improvement basis. All the efforts we are doing right now, rolling out methods in our supply chain or in driving the function is regular. The pace of the improvement is going to be on a regular basis. We don't expect major change on the pace. As I just mentioned, in terms of restructuring charges, we will probably see higher charges in the last quarter than what we have seen. This is more the cost, the benefits are expected to remain on the same pace. On your second question about bolts-on acquisition. Yes, you've seen a lot of activity in the M&A area, in the different business on the coating side, but also very active on chemicals. Multiples are clearly high.
We are determined to stay and focus on the bolt-on we think can bring value to the business. I think we've been very disciplined. You've seen the acquisition we have realized at the beginning of the year. This is typically the acquisition we want to do in one of our core business, bringing us an increased position in a market where we already a strong leader and also bringing some new technology. That's what we will focus when we look at potential new acquisition, and that is definitely part of a strategy to have this bolt-on, on top of our organic growth.
Thank you very much.
Thank you, sir. Next question comes from Mr. Marco Evans. Sir, your line now is open.
Yeah. Just picking up again this M&A theme. You're on the wires, news wires, Maëlys, saying that you're prepared to undertake multiple bolt-on purchases. As you say, acquisition prices are high. Is this almost now an admission of defeat in as much as the growth within your restructured business is clearly very poor. Volume growth of 0% for the group, price is down another 2%. Is it an admission that you need to change the structure of the group materially? The other thing is, you say you've earned the right to M&A. I'm not entirely sure what you mean by that. Surely what you're saying is that you need to make acquisitions. I think earning the right following restructuring may not necessarily be logical.
To be very clear, this is absolutely in line with the strategy we have announced one year ago in our capital market day. Nothing has changed. It is absolutely not something new. We had, at that point, clearly highlighted that we had been, in the past year, concentrating in restoring the profitability in the business, building the foundation, and we were now in the second leg of our strategy, which was to focus both on profitability and also on growth. These goals will be on organic growth, primarily focused, but also on pursuing with bolts-on acquisition. It is absolutely in line, nothing new. The concept of earning the right is to say that we have built the foundation. Before you can acquire a company, you need to be able to achieve internally restore the capacity within the company.
Therefore, we have done that, and now we think that we've reached a level with the way we run the business and the profitability and the value generation, in particular in terms of cash generation, is restored. That is what is derived from earning the right. The other way also is important to look at our balance sheet. We have now a stronger balance sheet, and this is coming from this. Just to be clear, no change. It's exactly the strategy we have announced, and it's in line with the step we have taken this year with this first acquisition. As I mentioned, we will remain disciplined as cash generation is a key focus for us.
Thanks very much.
Thank you, Mr. Marco Evans. The next question comes from Mr. Peter Clark. Sir, your line now is open.
Yes, good morning. I just want to clarify one thing and two other questions. Just clarify on the restructuring charges, you indicated that Q3 was similar year-over-year, which is certainly what you get by what you're suggesting on Q4. Then the two questions. On the U.K., obviously, you said it was down ahead of the vote, and it remained down. I'm just wondering if it was down for the whole of the third quarter. The reason I ask that, of course, your competitor suggested that July actually was a bit better for them. God knows what happened in August and September, of course, subsequently. Effectively, they said that because obviously the big paint season is over in the U.K., it's very important for you. Then the second question is related to the Marine Coatings.
Obviously, judging by the numbers you've given, you could probably gauge that the business is probably down 10% or so. Obviously, you maintain it's challenging, going to remain challenging. Is that a sort of trend line you see continuing, or are we going to be lapping something soon, or was it below trend, that sort of volume and price hit we saw in the third quarter? Thank you.
Yeah. First question on the restructuring. As I mentioned, we expect the restructuring cost for the full year to be about the same level as last year, but around half of it to take place in Q4. Clearly we will see more in Q4 in comparison compared to Q4 last year, but overall for the full year would be about the same level, which were around EUR 74 million for the full year last year. On the U.K., I have not mentioned anything. I have not mentioned that we are down in the U.K. Overall, as we mentioned, Europe, Middle East, Africa was up. In U.K., what I have indicate is that we do not see any clear trend on the market today. It is really too determined what is going to be the trend. We have seen a very various trend in the quarter.
If you look at statistic out also, they are all over the place. PMI dropped sharply in the two first month, then improve and bounce back in September. You see some figures that say that GDP will be lower, but we also have index that show a steady and stability, for example, in IHS index for construction growth. No clear trend, and therefore I have given no indication on the downturn in the U.K. Overall, as I say, Europe, Middle East, Africa remained during the quarter positive. Your last question was about the marine. Indeed, marine is not a surprise. We had already flagged that to you since the beginning of the year that we were expecting a downturn because that's where we've seen that the backlog was clearly down. Yes, we do see that this negative cycle will remain in the future.
This is part of the challenging condition which are part of our outlook.
Thank you.
Thank you. Next question comes from Sir Alex Stewart. Sir, you may proceed.
Hi, Maëlys. My question's been answered. Sorry about that.
Thank you.
Thank you, sir. Next question comes from Mutlu Gündoğan. Your line is open.
Yes, thank you. It's Mutlu Gündoğan at ABN AMRO. Two questions. The first question is on the accident at BASF. I was wondering, have you seen or do you expect an impact of the accident at Ludwigshafen on your businesses, be it positive or negative? Secondly, sorry about this because a couple of questions have already been asked on M&A, but also I want to ask something about it. Your large coating peers are doing major acquisitions. Don't you fear that your market positions will weaken as your competitors become bigger and stronger by doing these larger acquisitions while you're keeping with bolt-on acquisitions? Thanks.
Okay. On the BASF, as I mentioned, the acquisition will close at the end of the year, will contribute in 2017 to the growth. Related to the incident, no, the incident does not affect any of the operation we are planning to acquire from BASF.
Maëlys, apologies. I meant BASF as a competitor or as a supplier, not so much the transaction of the coating assets.
I'm sorry, can you repeat your question exactly because I thought you were meaning for our acquisition. What is your question?
No, it's two different questions. The first question is on BASF as a potential supplier or as a competitor to Akzo Nobel. Just wondering whether that will have an impact on your business, the fire at Ludwigshafen. Secondly.
Okay. On this, the details are still emerging, you can understand that it's really too early to say what will be the impact of this incident. I cannot comment at that stage. On the other question, which was related to the M&A that's going on in the industry, as I mentioned, we are part of it with the BASF acquisition. The landscape is changing. We are, of course, a strong player in this market, and we expect to remain so through our continuous focus on innovation and technology. We have shown you several example that we've launched this quarter of products, in particular for the Chinese market with clear sustainable advantage. We continue to grow in India with this new factory we have just opened for powder business. We are developing further products in chemical for cleaning and surfactants.
There are many example all across our business where we launch new products, that's clearly a strength that will help us in this industry to continue to grow.
Okay. Thank you.
Thank you. Next question comes from Patrick Lambert. Sir, your line is now open.
Hi, Maëlys. Hi, Lloyd. Hope you're doing well. A few questions for me, two, I think, or three, maybe. Again, on marine and protective. Would it be possible to get a split between maintenance and OEM in both marine and the rough estimate would be fine, just to see how sustainable the maintenance business. Because you mentioned also maintenance being a bit weak on marine, and if you can comment that also, maintenance on protective will be interesting to know. First question. Second question, again, on Deco U.K. Could you comment a bit more on the parts of Europe, Sweden? I know you two have, I think Peter tried, but in terms of volume growth versus the 3% average of the region. The third one, raw materials.
We're starting to see raw materials going up on the back of your price, also on supply tightness, I guess, in TiO2 and restructuring of some plants there. What's your outlook for the remainder of the year and maybe early 2017? Thanks.
On your first question about the Marine Coatings business and Protective Coatings, as we mentioned, what we've seen, the pressure on the volume in Marine Coatings are impacted both by new builds and also by maintenance and dry docking. You've probably seen the news all on Asia, a lot of distressed companies in the shipyard industry. This industry is really facing a significant downturn, and that affects both of the activity of maintenance and also on new builds. On the Protective Coatings side, as we mentioned, on this quarter, we remain robust because backlog of projects, but we clearly see the headwind continuing in the oil and gas industry. For the moment, the outlook remain negative for this sector. On the other end, as we mentioned, we have in Performance Coatings other markets that are growing, in particular the Automotive Coatings and the consumer electronics in Specialty Coatings.
We also see good trends in Powder Coatings and overall Asia has really shown a good progress. If we look at Europe, as I mentioned for Decorative Paints, we see a strong growth of 3%. As I mentioned the growth quarter for me already there. The growth is Asia. We continue to see a very good demand overall Asia and also including in China because of the Chinese construction market continues. Middle East, Africa are also positive, but I would say it's really Asia which is the largest contributor, and Latin America is really negative. We have flagged that. It continues to be a challenging market, even though the currency now is getting better, but that's really the main driver. On the raw material side, in this quarter, we continue to see raw material prices lower.
As we mentioned before, in some of the regions, the currency adverse impact on raw material has hampered this reduction. If we look forward, when you look at the curve, and I recall you know that perfectly, we do not buy oil. We buy derivatives of oil, there is also a lag effect. When you look at the curve of oil price, we are now back to about the same level of last year. Therefore, we do expect the year-on-year benefit on raw material to dissipate over the end of the year. In TiO2, we, for the moment, expect a benign effect on the short term.
Thanks, Melise. Thanks.
Thank you. Next question comes from Christian Faitz. Sir, you may proceed.
Yes, morning. Thanks for taking my two questions. First of all, Deco in Europe. Can you please talk about underlying volume trends in the various countries? I know you talked about the U.K., but how about France, Benelux, and the Nordics, for example? Second of all, in your Specialty Chemicals activities, can you please talk about demand trends in China during Q3, maybe sequentially, how demand developed? In that context, other companies are talking about easing supply pressures, in China, i.e., quite a few local competitors are leaving the market. Can you confirm that in your Specialty Chemicals activities as well? Thank you.
For Europe, although, as we say, still a very different sneak back of country, we are in more than 30 country. On the major country, as I mentioned to you, U.K. still a very no clear trend on this market. In France, the market remain challenging. I think that's the important part, overall, we are slightly up in the region. Going to China, as I mentioned, we have seen good progression during the quarter, I must say this is across the board in all the businesses. You have seen some figures this morning about GDP, in line with expectation, about 6.7%. So far, we continue to see a good trend in China also in overall Asia region, which represent a significant part of our growth for all our businesses, including, for Specialty Chemicals. As you've seen this quarter, volume growth in Specialty Chemicals are 1%.
Thank you.
Thank you. Next question comes from Jean-Francois Marmonti. Sir, you may proceed.
Hello. Jean-Francois Marmonti from Morgan Stanley. I have a quick one I want to further elaborate on the dividend. Let's say after years of leaving dividend unchanged, you upped it last year, but you're still not at industry standard, which would be a 3% yield on your competition. If I take a 3% yield on your current share price, that would point out to EUR 1.80 dividend, which would be a 15%-16% increase year on year. The same way you say you've earned the right to do M&A after years of net generating cash, you've turned the corner and generated significantly more cash. It's six times more year on year in Q3. I would have thought that your investors also have earned the right to earn a market rate dividend yield. Can you a bit elaborate why you are not adjusting your dividend to competition?
That's the first one. On the second one, is there any reason to think that your cash generation in Q4 would be materially below last year? Thank you very much.
On the dividend, as you pointed out, we had several year of stable dividend, in a time where we had cash negative. It was also to show the confidence we had in the future. I think since last year, we are in clearly a different trend. We have increased our dividend, last year 7%, and now we continue to increase the dividend. Our policy is really a stable to rising, though dividend are very important, and we do indeed focus on the cash generation and also returning the cash to the shareholders. I think these two years increase of the dividend is a sign of the fact we want to clearly give the benefit to our shareholder. In term of how we compare with others, as I said, we have to have a policy which is sustainable in the long run.
Is there a simple reason why not to go to industry standards? That would cost you EUR 40 million, additional, which is nothing compared to your cash generation. Is there any reason behind?
I think there is not industry standard. If you see last year, we had already Payout ratio, which was quite significant, about 40%. We have our policy to stable to rising dividends. It's a long-term trend, which is important. We want to reward regularly our shareholder. I think 2 years, and I think this one, the interim dividend, continuing to show progress on the dividend is a very good sign. About the cash generation, as I mentioned, we continue to be focused on the cash generation. You've seen good progress on this quarter, yes, we do expect to continue to show progress. I recall that in the Q4, we expect to close the acquisition of BASF, excluding the acquisition, we continue to aim at being cash positive for the year.
Good. Thank you.
Our last question comes from Sir Paul Walsh. Your line now is open.
Yeah, thanks, buddy. Just one follow-up question, please, on the pension top-ups. I think they are denominated in sterling. The next one is due in the first quarter. Are you doing anything to take advantage of current sterling weakness to reduce the net present value of those top-up payments? Is there anything you can do to lock in the current favorable rates to reduce the euro burden?
Yeah, for the moment, as we have indicated on our cash top-up, first important to notice that the recent buy-in that I mentioned have no impact on those top-up. The only positive impact is that, as we mentioned before, it reduced the potential volatility of those top-up, so increase the visibility. In terms of these top-ups, we are giving them to you an indication in euro. At that time, it was €0.71 versus pound exchange rate. With the lower pound, you can expect to see a lower effect. We do sometimes hedge a part of it, but not all, therefore we expect to benefit for some of the lower currency when we pay our top-up next year.
Just one final one from me, sorry. Pricing power. If we do move into an inflationary environment next year, how confident is the group that they can manage that with pricing initiatives across the three divisions, please?
Well, as you know, we are constantly reviewing and adapting to a situation on the pricing. We have flagged nevertheless that for the past two quarters, we have seen a deflationary environment with deflationary pressure, in particular in chemical. If environment changes, of course, our policy is always to see how we can reverse this trend. We will adapt as we've done in some markets that have seen this pressure. You've seen what we've done in Latin America, in Russia, in Brazil, was a good example of what we were able to achieve. On the short term, we see that the deflationary pressure will probably remain.
Remain for how long? Just to be clear, you think you can get prices up if you need to?
Well, that's always been our policy and will remain our focus. As we say in our outlook for the short term, we continue to see deflationary pressure, and we see challenging condition, but our policy is always the same, to look at how to improve our margin. Pricing is one of the aspects when we see environmental change condition.
Understood. Thank you very much.
Thank you. Next question comes from Martin Dunwoodie. Your line now is open.
Great. Thank you very much. I've got two questions. Firstly, just coming back to the pricing again. Not really relating to raw materials, I know you say it's a deflationary environment, but more in the case of GBP in the U.K., whether you're doing anything on pricing there to offset the weakness you're seeing in the currency. Secondly, on Marine Coatings, you alluded to restructuring coming through there. Have you already been restructuring in Marine Coatings, or is there an awful lot more to come that you're doing within that? What kind of actions are you taking to cut costs within that area? Thanks.
On the currency, as you've seen in this quarter, overall, the impact on the revenue was around 2%. As we have put in our outlook, we expect currency headwind to remain. If we look at the current currency at the stage where we are might be even a little bit higher in the last quarter, mainly because of the GBP. This is mostly translation effect. As you know, we are producing and locally in the U.K. We are fairly natural hedge, except for some of the raw material that we import, but we'll continue to adapt as we mentioned before. Your other question was on the Marine Coatings and restructuring. As we mentioned before, we have done very large restructuring in the past and in particular in Performance Coatings.
We did close many sites, Marine Coatings was of course, part of the whole change we've done in our Performance Coatings business where we delayered a lot of management, where we also closed factories. Marine Coatings was already part of that. Of course, as we mentioned, when we see further downturn on the sector, we could take additional measures. That's what we did in Brazil last year when conditions were not favorable, and we'll continue to adapt going further in the specific market where we see weakening trend happening.
Okay. Thank you very much.
Your next question comes from Markus Mayer. Sir, your line is open.
Good morning, Markus Mayer. Only one question remaining, as we are now in the times of merger mania. For you, does a merger among coating companies make sense? Would you also be willing to do such a step if there would be a logic behind that?
I'm sorry, I couldn't hear. On merger, as we mentioned, our strategy is really to drive growth through organic growth, volume development, and also bolt-on acquisition. This is part of our strategy that we are pursuing for more than a year now. The acquisition we've done from the BASF industrial coatings are part of this strategy. We, of course, continue, as I mentioned before, to be very disciplined in the way we acquire and make sure the target or the company we want to acquire or merge are really fitting with our strategy of growth and profitability.
No, the question was if there is a merger among two large coating companies would make sense, from business logic and how you, the management of Akzo Nobel, would see such a merger if someone would approach you.
Well, I do not make any comment on, again, speculation. Our strategy is clear. We want to pursue bolt-on acquisition, that's what we are focusing on.
Okay, perfect. Thanks.
Thank you, sir. We have no questions at this time.
Okay, thank you very much to everyone for the call and your questions. We'll end the call now.
Thank you, sir. That concludes today's conference. Thank you all for joining. You may now disconnect.