You may now begin.
Good morning, everyone, and welcome to the Axnevale Q1 2016 Investor Update Conference Call. I'm Lloyd Midwinter, Director, Investor Relations. Today, our CFO, Melis Castello, will guide you through the results for the Q1. We will refer to a results presentation, which you can follow on screen and download from our website, agsinnobel.com. A replay of the call will also be made available.
There will be an opportunity to ask questions after the presentation. For more information, please contact Investor Relations. Before we start, I would like to remind you about the Safe Harbor statement 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 Melise, who will start on Slide 3 of the presentation.
Thank you, Lloyd, and good morning, everyone. We are delivering on our strategy of continuous improvement and organic growth. During Q1 2016, we increased volumes and profitability in all business areas despite challenging markets and currency headwinds. Operating income was up 17% and net income attributable to shareholders was up 50%. The net cash outflow reduced significantly compared to last year.
We also announced an agreed offer to acquire BASF Industrial Coatings Business. And in April 2016, we issued a NOK 500,000,000 bond with 10 years maturity at a coupon of 1.125%. Turning now to Slide 4. Q1 2016 represents another quarter of improved financial performance with both higher volumes and profitability. Volumes were up for all business areas and up 2% overall.
However, revenue was down 4% with higher volumes offset by adverse currency effects, price mix and divestments. It is worth noting for both Decorative Paints and Performance Coaching that the volume growth was higher than the adverse price mix effect. EBIT, which is operating income excluding incidental items, increased 9% and profitability improved further with both return on sales and return on investment higher than last year. EBIT provides a better picture of underlying business performance. So in response to your feedback, we will refer to this measure going forward and it will be used as the basis for calculating return on sale and return on investment as indicated during our Capital Market Day in October, course, we will continue to be transparent and include operating income in our communication.
Net income attributable to shareholders was up 50% and adjusted EPS increased 28% to $0.97 Now a brief operational review starting with our end user segments on Slide 6. The Buildings and Infrastructure segment is more significant for AkzoNobel with 43% of revenue. This segment is developing in different ways depending on region and country. Trends for North America and Asia are positive, while developments are more mixed for Europe and conditions are particularly challenging in Latin America. In the Transportation segment, recent developments for Marine have continued to be positive based on past backlog.
The medium term outlook remains uncertain due to backlogs reducing at shipyards. Demand for aerospace and automotive coatings continue to be healthy. As a general rule, trends for the consumer group segment are similar to GDP. In the industrial segment, demand has been impacted by a downturn in the global oil and gas industry. This affects our Protective Coating and Surface Chemistry business in particular and the impact is likely to continue in the medium term.
Turning now to slide 7. Global Manufacturing, particularly relevant to our Industrial end user segment, is essentially at a standstill. However, trends are mixed depending on country and region. Recent PMI data shows an upturn for China, although continuing to contract as you can see below 50, and it isn't clear whether this trend will continue. And we'll see a slight expansion for the Eurozone with mixed developments across the region.
The U. S. Expanded at a slower rate than in the past, while Brazil and Russia contracted further. Slide 8 includes the most recent consumer confidence from Nielsen. This chart shows Q4 2015 because more updated data is not yet available.
Consumer confidence has a clear influence on consumer buying decision, including houses, furniture and consumer durable and is therefore relevant for our consumer goods and user segments and our decorative pace business. The data shows consumer confident trends differ per country and within region. Consumer confidence remain low for several countries, including France and Belgium, although there are signs consumer confidence is increasing in Western Europe. Now moving to the financial review from Slide 10. During Q1 2016, we have increased volumes, return on sale and return on investment.
Volumes were up for all business areas and up 2% overall. Revenue was down 4% because higher volume were offset by adverse currency effect, pricemix and divestment. But both decorative paints and perfumescoating showed growth with the impact from positive volume higher than the adverse price mix effect. However, price deflation was clearly visible in Specialty Chemicals. EBIT, operating income excluding incidentals, was up 9% at €334,000,000 compared to 306,000,000 in 2015, reflecting continuous improvement initiative and lower cost, partly offset by adverse currency effects.
Operating income was also up at EUR357,000,000 and includes an incidental gains on sale of assets of EUR 23,000,000 Return on sale improved to 9.7% from 8.5 last year and return on investment increased to 14.5% versus 11.5% in 2015. Slide 11 shows the quarterly trend for volume and price mix. During Q1, volumes were up for all business areas and up 2% overall. Volumes increased 6% for Decorative Paint, 2% for Performance Coaching and 1% for Specialty Chemicals. Demand trends were different per region for both Decorative Paint and Performance Coatings.
As indicated previously, they both grew as the positive volume impact clearly were higher than the offsetting pricemix. However, for Specialty Chemicals, pricemix was negative 4% due to price deflation and in some case, formulae based pricing. I'll now turn to the highlights regarding the quarterly results for each of the businesses. Let me start with decorative paints on Slide 12. Volumes increased 6% due to positive developments in Asia and Europe, offset by Latin America.
Positive developments continue in the UK and the Netherlands. Volumes improved for several countries within Europe, Middle East and Africa. Demand was positive in many Asian markets, particularly in South and Southeast Asia. In China, volumes were positive despite continued challenging condition in the Chinese construction market. And in Latin America, market condition remained challenging as economic instability continued.
Revenue was down 3% due to higher volumes offset by unfavorable currency effect and adverse price mix. EBIT and operating income were both up 4% at $52,000,000 mainly due to higher volumes and lower costs partly offset by unfavorable currency. RoTE increased to 6% from 5.6% in 2015 and ROI improved to 12% versus 9.8% last year. Highlights for Performance Coatings are shown on Slide 13. Volumes were up 2%, mainly driven by Marine and Protective Coatings, although demand was impacted by lower capital spending in the global oil and gas industries and demand differed per region.
In Protective Coatings, higher volumes were driven by project backlog, which continued from Q4 and Marine Coatings volume improved due to new build projects in Korea. New business in Asia for Consumer consumer electronics, specialty, chemical and automotive coating grew, particularly in North America and Europe. Demand for cold coating was strong in Asia and North America and packaging Coating saw positive development in Europe and Asia. Volume for Powder were also healthy. However, revenue down 3% because the increased volumes were offset by adverse currencies and the favorable price mix.
Everton operating income were up 9% at $186,000,000 due to higher volumes, management delayering, continuous improvement initiative and lower cost. Return on sale increased to 13.5% versus 11.9% last year and ROI increased to 30.4% from 22.9% in 2015. Turning now to Slide 14. We recently announced an agreed offer to acquire the ESSA Industrial Coatings business for $475,000,000 which will strengthen our position in the coil coating market. The business generated revenue of about $300,000,000 in 2015 and supplies product for a number of end users, including coil, furniture foil and panel coating, wind energy, general industry and commercial transport.
These fits well with our existing business. The planned transaction is expected to be complete in the latter part of the second half of 2016. We're moving now to Specialty Chemicals on Slide 15. Volumes were up 1% with positive developments in Industrial Chemicals, partly offset by lower demand in oil related segments, which impacted the surface chemistry business in particular. Volume for Industrial Chemicals were higher, mainly due to increased by the interruption in the manufacturing and supply chain in Tianjin, China, affecting comparison versus Q1 2015, although availability improved compared with Q4 2015.
Pulp and Performance Chemicals was impacted by the divestment of the paper chemical business, which took place in Q2 last year, but excluding the divestment volumes, development were positive. Revenue was down 7% overall due to the divestment, price deflation and adverse currency effects. Both EBIT and operating income were up 1% due to operational efficiencies and lower costs, offsetting the effect of price deflation and adverse currencies. Return on sale increased to 13.6% compared to 12.6% in 2015 and ROI improved to 16.5% versus 15.3% last year. I now move to the cash flow on Slide 1st, the 1st the seasonal working capital requirements and pension top up payments.
Free cash flow generation continues to improve, demonstrating the positive impact of higher operating results combined with reduced interest, lower working capital in all business areas, less restructuring and lower pension top ups. Net cash cash flow from operating activity improved to $336,000,000 compared to 622,000,000 dollars in 2015. Turning to Slide 17. Net financing expenses decreased mainly as a result of reduced external interest expenses following the repayment of a high interest bond in Q1 2015. At March 31, 2016, net debt was €1,700,000,000 versus €2,300,000,000 last year and €1,200,000,000 at year end 2015.
In April 2016, a $500,000,000 bond was at the coupon of 1.125 percent. And a £250,000,000 bond was repaid during April 2016. Our strong financial position provides a good foundation for growth. Pension liability according to ES 19 are showed on the Slide 18. The balance sheet position of the pension plan at the end of Q1 2016 was a deficit of €400,000,000 versus €600,000,000 at year end 2015.
This was the result of the net effect of top up payments predominantly into certain UK pension form, higher asset features and lower inflation offset by lower discount rate in the key country and derisking of pension liabilities. Turning now to Slide 19. The trivial review of the Axo CPS quarter pension scheme was completed in March 2016 and the new valuation and payment schedule was agreed with the trustee, which resulted in a lower annual top up contribution. The estimated annual cash top up payment has been updated and are set down in the schedule down on this slide. During the quarter, although further derisking of pension liability was conducted with a non cash buy in transaction of $490,000,000 related to the ICI pension fund, which led to a $90,000,000 impact in other of comprehensive income, but no impact on the payment schedule.
Concluding with the summary on Slide 21. So during Q1 2016, we increased volumes and profitability in all business areas despite challenging markets and currency headwinds. Operating income was up 15% 17% and net income attributable to shareholder was up 50%. The net cash outflow reduced significantly compared to last year. We also announced an agreed offer to Coatings Business.
And in April 2016, we issued a $500,000,000 bond with a 10 year maturity and coupon of 1.125%. We are clearly delivering on our strategy of continuous improvement and organic growth. Looking ahead, the market environment remains uncertain with challenging conditions in several countries and segments. Deflationary pressures and currency headwinds are expected to continue. At Comic event, I'll summarize on Slide 22.
Our AGM will be held tomorrow on April 2020 and the sustainability update take place on May 19 and our future results will be announced on July 19. Thank you for attention. This concludes the formal presentation, and I would now be happy to take your questions. Please limit your number of questions to a maximum of 2, so other can participate. And please state your name before asking the question.
Operator, we can now move to the question.
Thank you. We will now begin the question and answer session. Our first question comes from the line of Mr. Paul Walsh. Sir, your line is now open.
Thanks very much. It's Paul Walsh from Morgan Stanley. Good morning, Miley. I just had two questions. The first question was around the cash flow, please.
The improvements you've delivered in the Q1, I think it's about €300,000,000 year on year, give or take. Question is reasonably simple. Do you think you can sustain that or improve upon that year on year delta as we move through the rest of 2016? And my second question relates to Sterling and the weakness of Sterling and the broader impact across the group. So I wondered if you could put some context within the Deco business, how much it weighed on EBITDA, debt, pensions and so on, just to give us a fuller picture of the effects of Sterling on the business right now?
Thank you.
Yes. Thank you, Paul. So your first question on the cash flow. First, as I explained, as you know, the Q1 is particular because that's the quarter where we have a negative cash flow due to the small quarter in both to the improvement of our operation, then to a massive reduction of the interest paid. So that you've seen the interest payment went down for 48 to 4 as we repeat the big bond last year with the high coupon 7.25 dollars and the payment of the interest $48,000,000 was the full amount of the interest due on the year and that's why you have this comparison.
So this is the one time effort for the quarter. But as you see, our interest will continue to be low now that we have repaid all the expensive bond and in particular the new bond. On the other effect of the lower cash flow is due to a lower cash top up, and we have given you the update schedule, so you can see what will be the reduction for the full year. And the other driver was the fact we had lower cash restructuring in the Q1 last year, if you remember, we still had some cash payment of the past restructuring coming from 2014 over Q1. And last but not least, improvement of the working capital.
So this is really the driver. And as I say, of course, I don't be forward looking on the cash flow for the year because it will depend, but at least you have the explanation of why we have this improvement, which also show the very strong focus of the company and if you've seen the capital expenditure, they have been also under control at about the same level of last year. Your second question was about the pound. Indeed, we started to see in Q1 weakening of the pound and even further weakening by the end of the quarter. So overall, on average for the quarter, we had a decrease about around a little bit over minus 3%.
This, of course, has an impact in terms of the foreign exchange effect and this is part of the negative ForEx effect you've seen in particular in Deco. And that's why they have a strong negative foreign exchange, the large part being from Latin America. So we definitely have a translation effect that might continue, as we mentioned, in outlook in the at least in Q2, because the pound has weakened further. So we'll continue to see that. So of course, this impacts all the different parts of our P and L and our cash flow.
So that impact Revol. In term of debt, as you have seen, we have repaid the bond in Pound. So there is no outstanding debt in Pound going further. And of course, our cash top ups are in pound, but we just paid the big amount in this quarter. So the lower pound will definitely negative impact for some of the business in the UK and also could have a little bit of transactional negative effect as we have also some more material that are could be imported in the UK.
Brilliant. Thank you very much, Marius.
Thank you. Our next question comes from the line of Mr. Tony Jones. Sir, your line is now open.
Good morning. Tony Jones at Redburn. 2 from me as well. So firstly, on promotional costs for Deco, we know that some of the major retailers have stepped up paid promotion or price deals. So I wanted to know in this quarter or possibly for Q2 whether there was any added A and P cost.
So that's something to think about. And then secondly on headcount, at the back of the release, it looks like that number continues to fall. So a quick look suggests it's gone down another 1% year on year. Is this just a phasing effect for hiring of seasonal employees? Or is this permanent?
And can we expect further progress over the year? Thanks.
So on your first question, as you know, we are now in we are clearly focusing on organic growth and of course investing in our brand and in the promotion of our products, it's part of our focus, including innovation. You'll clearly see an increase during the quarter of our volume in Deco. We you have to bear in mind in Q1 last year, we had a very low volume of minus 3%. So now we are plus 6%, which show a better much better trend. These on the other hand, you see some price mix negative, but as I stated, they are clearly above the volume increase are clearly above.
So we are growing in Deco and this is in particular due to strong demand in Asia and mix effect in Europe. So there is nothing specific I need to mention about promotion. Your other question was about the FTE. As we have as you know, we have done our large restructuring, in particular, in Deco in previous year in 2014. In 2015, we started to move to the continuous improvement.
And the shift you've seen between last year Q1 and now, as we mentioned at the end of the booklet, as we are putting in place some global function with the GBS, we add some functional people that are moving out of the headcount of the different business to the corporate ad account because they are put together to build on this GBS, which will give us additional efficiency in all our functional costs. We continue to restructure, of course, when it's needed. End of the year, we have taken some measure, for example, in Brazil in the context of the difficult, but there are no major restructuring going on right now. We are moving really to the continuous improvement mode.
Okay. So just a quick follow-up on that. I'm pretty sure the number I was referring to was a group number. So if there are people moving from divisions to corporate, it should always probably reflect that. But
so I think my question is You
are mentioning the Deco number. Yes, so at group numbers, well, compared to last year, yes, we have continued to the group. So I think, yes, the figure was around minus 1% year on year compared to last year. As I say, we continue to do some program in some country and adapt our global workforce. But I thought you were specifically related to Deco.
No, perhaps that was my mistake. Sorry about that, but thanks for the answer.
Thank you. Our next question comes from the line of Mr. Jeremy Rodenius. Sir, your line is now open.
Hi, it's Jeremy Rodenius from Bernstein. Thanks for taking the questions. Firstly, just in decorative paints, so this 6% volume growth, I think I'm trying to work out why earnings growth wasn't greater than it was year over year. And I'm just wondering maybe if you could help me think through some of the factors that led to what I would say the lack of operating leverage there, whether it was a negative mix effect in Asia or just low profit growth in Asia. Was this a big quarter in which dollarized raw materials were expensive to import in emerging market current into emerging market countries, sterling weakness, etcetera.
And secondly, in Specialty Chemicals, Industrial Chemicals was up on capacity expansions in Q1. I know you've upped your chlorine capacity about 50% in Frankfurt. Is that ramped up now or that continue to ramp up into subsequent quarters? Thank you.
Yes. Thank you, Jeremy, for your question. So first on Deco, you have to bear in as I mentioned, that Q1 is a small quarter. Therefore, already we have traditionally a lower return on this quarter because you have the full cost with lower volume. Therefore, your volume leverage are not that relevant.
And then secondly, what is important to notice in particular that we have a very negative foreign exchange impact on raw material in some countries, in particular, Latin America, but also Russia, Turkey, Indonesia, where the transactional effect of imported goods are really affecting the results. So that's what compensate a part of the positive volume. On the other hand, as you can see, we continue to put some improvement action in place, but this is what affect, in particular, the quarter, this transactional effect is very significant. For your second question on availability of RIC, definitely, as we mentioned, the better ability both in Rotterdam and the ramp up of Frankfurt. Frankfurt is now fully on stream, so that's the level, I would say, on which we operate.
We're not going to see a further increase.
Okay. Well, thank you very much. That's very clear.
Thank you. Our next question comes from the line of Mr. Peter Clark. Sir, your line is now open.
Yes, good morning everyone. Good morning, Mylan. So it's actually following up on what you were just talking about. I'm just wondering how big the Easter effect was, particularly in the Northern European business, because in a seasonally weak quarter, of course, where Easter falls can have quite a big impact, particularly on the volumes? And then the second issue is, I might have missed this, but what's been going on with the associates line with the big contribution in the Q1?
So those are the two questions. Thank you.
Yes. So on your first question, as I mentioned, there is no specific effect from East or Other in the figure. As I mentioned, in Q1, we are pleased with the performance in Deco even though we have to bear in mind that Q1 last year was really low with the minus 3. So this is something to have in mind. And as I mentioned, Asia was one of the very strong contributor of the growth.
On your second question, on the associate, The associate line where you see an increase at 20 from, I think, to 20,000,000. This is including a one off effect linked to the acquisition we mentioned of Chemical. We acquired 50% of a subsidiary we have in the bleaching chemical and this is a one off accounting impact from this acquisition of this 50% stake.
Got it. Thank you.
Thank you. Our next question comes from the line of Mr. Patrick Lambert. Sir, your line is now open.
Hi, good morning. Thanks for taking my two questions. The first one relates to the, again, the building blocks of EBITDA EBIT growth in 2016. And looking at Q1 2016, could you comment a bit on both the run rate of savings and raw material? I know you usually don't do that quantitatively.
Can you comment if how strong were the tailwind of raw material? I know again transactional is another issue, but prices have gone down pretty sharply in many resins and pigments, etcetera. So if you could comment on the tailings of raw materials and your win rate of savings going into the rest of the year? And second question on BASF margins, BASF acquisition, could you comment a bit on what we should think about in terms of dilution of margins and basically and synergies you can see from that? Thanks.
Yes. So on your first question, we do not, as you know, provide, as you say, the bridge at the quarter. I think what is to bear in mind, as we mentioned already in the past on the raw material is that, yes, we've seen a lower price, but we have a very strong negative foreign exchange, Edwin, in some countries, as I mentioned, in particular, very strong in Brazil and in Argentina, where currency devalues more than 30%, also strong in Russia, in Indonesia, in Turkey. So those are really what we see as the effect tempering the raw material benefit. Overall, we'll still see some moderate benefit as we have seen in 2015.
If you remember, Q1 2015 was the Q1 only where we started to see some benefit the benefit increase over the year. And we continue with the lower oil price to expect some moderate benefit over the year 2016. In terms of our run rate, we do best to continue to benefit from both the restructuring program we had put in place last year, in particular in Performance Coatings, as you know, where we had major delivering of the top management position and also closure of several factories. So and we also have continuous improvement programs. So we continue to see a strong benefit of the run rate of our program.
This is a major contributor to the improvement. And of course, we have the negative effect of the translation. On the BASF acquisition, we do not provide the detail we have not provided detail on margin. You also have to bear in mind that we are still in the process for this acquisition that will be confirmed at the end of the year. So, so far, we have not provided.
But as we mentioned before, it's a very good fit with our existing business that reinforce our position. And we also say that we are concentrating on acquisition that are generating value for the company.
Thanks, Manish.
Thank you. Our next question comes from the line of Mr. Mutlu Gundogan. Sir, your line is now open.
Two questions on Deco, please. The first one is on the volumes. A very strong performance, up 6% year on year. I think you mentioned, Melisse, that it was mainly in Asia. Can you be a bit more specific and tell us which countries and what's the main reason behind that is?
And then secondly, on the EBITDA margin in Deco, can you tell me I know there's a lot of moving parts, but can you tell me what the main reason was 40 bps decline in the EBITDA margin to 10% in this quarter? Thank you.
Yes. So for Deco, I think it's important. I'm sorry, I'm going to repeat myself because I want to be clear on that. Q1, twenty fifteen volume were down minus 3%. So we are now plus 6%.
So there is, of course, a comparison effect. If you see over the rest of the year last year, then the volume were better in Deco as in Q2, we were at minus 1 then 0 and we start to see the positive trend at the end of Q4. So what I want to be sure is that you bear in mind that the plus 6% is not necessarily going to be the trend for the full year because of this comparison effect and because also Q1 is a small quarter too. Nevertheless, it does indicate a good trend. The positive development are particularly visible, as we mentioned, in UK and the Netherlands.
We also have several countries in Middle East and Africa that are improving and some in Europe. And the demand was particularly positive in Asian markets and in South and Southeast Asia, Vietnam very good, Indonesia, India. And in China, we're also at volume positive despite a context, which is still challenging in the Chinese construction market. Though overall, as I say, positive trend that are offset by markets very challenging in Latin America. But as I mentioned, Q1 is a small quarter, so we cannot yet see what will be the trend for the full year.
The second part of your question was on the EBITDA improvement. So in Decorative Paint, we see an improvement. As it is a small quarter, of course, we have the full cost, fixed cost with lower volumes. So by definition, the return is always lower in Q1 compared to the rest of the year. Nevertheless, we have also some improvements coming from our continuous improvement program, but hampered by the negative foreign exchange and in particular the transactional effect I mentioned before.
Oh, Malise, the EBITDA margin was down, if I'm not mistaken, by 40 bps.
Yes. I will return to you on this one specifically. But as I mentioned, it's probably because as we have, as I mentioned, the negative effect of the transactional effect, and we might have last year some specific effect I don't have in mind. But overall, as I said in this quarter, the improvement of the volume was hampered by the transactional effect. That's the main explanation of the variation.
Thank you.
Our next question comes from the line of Mr. Christian Faitz.
Just a quick follow-up question, clarification question. You mentioned in your introductory speech that Brazilian Deco volumes were up 3%. Is that correct? And then second question, in your chemical activities, specialty chemicals, can you please talk about demand trends in China during Q1? Has demand improved post the New Year celebrations?
And how does demand look at present for chemicals specifically? Thank you.
I didn't get your first question. I'm sorry. I didn't hear you very well. Could you repeat the first question?
Okay. I just wanted to clarify that you mentioned that Brazilian BECO volumes were up 3%, is that correct?
No, no. I think in the contrary that Brazilian situation was very difficult. Revenue down in Latin America was down 27%. So we have a very strong negative environment in Latin America with both a big currency headwind and also a volume pressure with slight positive price mix. So I never said that Brazil was apparent.
Second question about China and clinical. As we mentioned last year, specifically for our functional business, we've seen some headwind coming in the Tianjin region because we have not been directly affected by the big explosion in China, but we have a plant there for our Polymer business and who suffers some supply chain disruption because of the effect of this changing explosion. And that has put some issue on our operation. That had negative impact in Q4 last year. It's starting to get better in Q1.
So we still are affected, but we are back, I would say, now to we are ramping up progressively. So things are getting better. Overall, for Kimiko in China, as we think it's still a mixed picture. And as I mentioned, when you look at the PMI data that reflect the overall environment, we now see that figure are improving, but it's unclear whether it's a trend or not. But for Chemical, for the moment, we have no specific issue apart from this engine supply chain disruption.
Okay. Thank you.
Thank you. Our next question comes from the line of Mr. Markus Mayer. Sir, your line is now open.
Yes, good morning. I have one question relating to the competitive environment. This acquisition of SPA of Sherwin Williams, do you expect that something in particular in the UK and Continental European markets will change due to this acquisition or basically for you to see if something will happen there? Thanks.
Well, so effectively, there is a major acquisition taking place with this Sherwin Williams deal that show consolidation is taking place. We also, as I mentioned, have done an acquisition of much different side as we have said that we are concentrating more on bolt on acquisition with this BASF Gold acquisition. For Sherwin Williams, as you know, they are mainly U. S. Very large U.
S. Distributor presence. And in particular, in Deco, we are not in North America. In Deco, we divest the business there. So we don't really we don't compete with them there.
In Europe, Valspar is present and then enter the UK market with the tincturing offering in BNQ. So we'll continue to see them, and it's yet too early to see what will be the impact of this acquisition. The deal is announced, but they will take place beginning of 2017. So we don't expect a big change at 2016 in the short term. On our side, we continue to focus on our strategy clearly of organic growth and continuous improvement.
That doesn't change the scene for the moment of what we see in Europe.
Okay, perfect. Thanks.
Thank you. Our next question comes from Mr. Peter Clark. Sir, your line is now open.
Thank you again. Actually, I was preempted. I was assuming the question, but just one specific thing you may or may not want to answer. Is Rumseal bigger than Cupronol at the moment? Or is Cupronol a bigger brand on the wood finishing in the U.
K. As a matter of interest?
Well, I will not go into detail of position per market and per brand. We are very strong player, as you know, in the UK in our different markets.
Perfect. I didn't expect anything. Thank you.
Thank you. Our next question comes from the line of Mr. Paul Walsh. Sir, your line is now open.
Sorry, just some follow-up questions, if I can. I just want to talk a bit about Specialty Chemicals actually, Miley. I think it feels like it's a business that people have been waiting for it to turn over and it just keeps improving its margin structure. So I just wondered if you could talk a little bit about what's behind that, in particular, what pockets of strength in that business are continuing to push the margins up year on year? That would be my first question, please.
Yes. So on chemical, as you noticed, yes, we'll continue to improve significantly our business. It's also a sign of that realize now people that we have restructured our business and pruned our portfolio to really concentrate on a business where we have strong leader position either regionally or otherwise. We are doing and continue to do a lot of efficiency program. We're improving our assets.
The investment on Frankfurt was there to comply to regulation, but also bring additional efficiency. We continue to do so. We have announced this year a production joint venture with Evonik in our Ibermbers site for also conversion to mercury free membrane in the IC. So those are example of a lot of program we're doing to continue to improve our efficiency. So I think the good margin are really showing that we have very good business with good position and that we are combining further improvement and with good demand.
As we mentioned, if you exclude the divestment of the Paper Chemicals business, we see that our pulp and Performance Chemicals is doing quite well. The surface chemistry is still impacted by the oil segment and that's particularly a negative headwind. But on the other business, we are doing quite well.
So there's nothing in that Specialty Chemicals margin that you would classify as unusual?
No, it's really the improvement we have done on our efficiency. There is no exceptional as we've explained to you when there is something material we do flag it.
Okay. And just second question please. Deco volumes, I know you want to be cautious about volumes as the comps get tougher particularly in Europe from the second quarter onwards. But can you be a little bit more detailed around some of the volume developments in Europe by country? I mean, it feels I mean, if I looked at the UroL paint data, it felt like UK was actually getting tougher, but it seems like you're still growing.
So is that a question of taking market share? And of course, the big drag last year was France. And I'm just wondering if you're now beginning to see improvements in the French market.
So as we say, and I think I made it very clear that the Q1 is a small quarter, so do not make a trend for the full year. And yes, we want to remain cautious. And as we have plugged it in our outlook, there are still challenging market conditions. So I think we are there wanted to clearly flag that. In terms of the overall demand, yes, we've seen, as I mentioned, especially good demand in Asia, strong there.
In Europe, it's still a mixed picture. So yes, UK and the Netherlands was doing quite well in this quarter. For France, as you've seen in my graph, it's still a very low level of consumer confidence. So they are sign of improvement, but it's still a very challenging market. And Belgium also is the same situation.
We know that the unfortunate event both in France and Belgium of the terrorist attack end of year and this Q1 had some influence on consumer behavior. So we're still very cautious about what's happening in this country. They are we cannot yet really talk about recovery in this country yet.
Okay, fine. Thanks a lot.
Thank you. At this time, there are no more questions on queue. Speakers, you may now proceed.
Okay. So if there is no more question, I thank you for your participation. And I will end now this Q and A session and the call. Thank you very much.