Welcome, and thank you for standing by. At this time, all participants are in listen-only mode. To ask a question during the question-and-answer session, you will press star and then one. This call is being recorded. If you have any objections, please disconnect at this time. Now I'll hand the call over to your host, Mr. Lloyd Midwinter, Director of Investor Relations. You may begin.
Good morning, everyone, and welcome to the Akzo Nobel Q3 2015 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 this presentation. Please note this statement is also applicable to the conference call and the answers to your questions. I now hand over to Maëlys, who will start on slide three of the presentation.
Thank you, Lloyd, and good morning, everyone. Our financial results for the third quarter continue to demonstrate how Akzo Nobel is delivering improved performance in a challenging economic environment, driven by the significant action taken in the recent years. Revenue was up 2% to EUR 3.8 billion and operating income 30% higher at EUR 436 million, reflecting the positive effects of our process optimization, lower costs, reduced restructuring expenses, and favorable currency developments. Return on sales improved 250 basis points to 11.6%, and return on investment was 12.5%, 200 basis points higher than last year. Net income attributable to shareholders was up 39%, and adjusted earnings per share increased 35% to EUR 1.14. The net cash inflow from operating activity was positive at EUR 583 million versus EUR 486 million last year. We also announced an interim dividend up 6% to EUR 0.35 per share from EUR 0.33 in 2014.
We are on track to deliver our target 2015. I would like now to move to the next slide, which shows the end-user segment relevant to Akzo Nobel. The building and infrastructure segment is developing in different ways depending on geography. North America continued to benefit from strength in the US economy, largely linked to commercial and residential construction. Several Asian countries were encouraging, while the Chinese construction market remained challenging. There were large variations in Europe, from positive trends for the U.K. and the Netherlands to more challenging environments, in particular Russia and Turkey. Latin America continued to be a particularly challenging economic environment, especially in Brazil. In the transportation segment, recent development for marine has continued to be positive, but the longer-term outlook remains uncertain. Demand for aerospace coatings continues to be healthy, while demand from the commercial vehicle industry was stronger across Northern Europe.
These gains were tempered by weaker passenger car production in China and Brazil. The consumer goods segment shows strength for furniture similar to the construction market, as I described earlier, and growth in consumer electronics continued to be positive. Demand for packaging coating varies per region, stronger in Europe and weaker in Asia. In China, sorry. In the industrial segment, North America continued to show a positive trend in some segments, while growth in China and Russia was subdued. Latin America continued to show progress in the pulp industry, while positive developments were also visible in Europe. More specifically, demand was weaker from the global oil and gas industry due to lower capital spending and delayed maintenance, as well as reduced production volume, which has impacted our Protective Coatings, Surface Chemistry, and Functional Chemicals businesses. Turning to slide 15, I will comment more on the general economic developments.
The Purchasing Managers' Index, or PMI, is relevant to our Specialty Chemicals business and our Performance Coatings business. You can see in the graph that U.S. and Europe continue to expand, while emerging countries like China and Brazil have a slightly lower rate, and the situation is worsening. India rate of expansion was in line with recent months. Moving to the Consumer Confidence Index, and I want to highlight that this slide is the Q2 information. We don't have yet the information for Q3. We use consumer confidence as an indicator on consumer buying decisions, including housing, cars, furniture, and consumer durable. Therefore, this important indicator for our Decorative Paints business and the consumer goods end-user segment. At this publication overall, the global confidence was slightly pessimistic at 97, so below 100.
Optimism further increased for India and some European countries became less pessimistic, although still below 100, including the U.K., Netherlands, and Belgium. There was some improvement in France, but confidence in this important European market still remains very low. Consumer confidence increased for China and Russia, although lower than the same time last year, while Brazil continued to become more pessimistic. It will be interesting to see how those recent events have impact consumer confidence in this country during the past quarter. Turning to slide 17. I now go through our operational and financial results in more detail. Akzo Nobel delivered in Q3 2015, another consecutive quarter of improved profitability. Revenue was up 2% to EUR 3.8 billion, due to 4% favorable currency effects, partially offset by the divestment and lower volume.
Foreign currency developments were less favorable compared to earlier during the year, particularly towards the end of the quarter. Operating income was at 30% at EUR 436 million, reflecting the positive effects of process optimization, lower cost, reduced restructuring expenses, and favorable currency developments. Raw material prices were lower, although in certain regions, foreign currency effects adversely impacted raw material costs in local currency. Total restructuring charges in the quarter were EUR 15 million, compared with EUR 55 million in 2014, therefore EUR 40 million lower. We continue to achieve planned savings with lower levels of restructuring expenses. Restructuring charges for the full year are likely to be around EUR 100 million, including restructuring charges of EUR 24 million linked to the divestment of Paper Chemicals reported as incidental items during Q2 2015. Both return on sale and return on investment improved. Return on sale was 11.6%, excluding restructuring cost.
Return on sale was 12% versus 10.6% in 2014. Return on investment increased to 12.5% from 10.5% last year. I will move to slide eight, which shows the quarterly trend for volume and price mix. The volatile economic environment continues to impact all businesses. The market trend in North America continued to be positive in some segments, with Europe not improving overall. Conditions remain challenging in many other countries, including Russia, Brazil, and China. Volumes were down 1%, flat for Specialty Chemicals and Decorative Paints, although 2% lower for Performance Coatings. Price mix was flat overall, consistent with the previous three quarters, although with different trends per business area. Decorative Paints and Specialty Chemicals were both 2% lower, although Performance Coatings achieved 2% higher price mix. I now run through the highlights of each business area. We have posted improvement in the three business areas.
Starting from Decorative Paints in slide nine. Revenue in Decorative Paints was flat due to favorable currency effects, offset by adverse price mix. Volumes were flat overall, up in Asia, although down for Europe and Latin America. Operating income improved 7% due to the new operating model, lower cost, and favorable currency developments. Return on sale increased to 11.5% versus 10.8% in 2014. Return on investment improved to 10.6%, up from 6.5% last year to exclude the incidental items related to the sale of Building Adhesives in 2013. Moving now to Performance Coatings. Slide 10. Revenue was up 5%, benefiting from favorable currencies and higher demand for premium products. Positive price mix offset lower volumes. Volumes declined in the quarter due to lower capital spending in the global oil and gas industry and further weakening in some markets.
Operating income increased 56%, driven by cost reduction from performance improvement initiatives, lower cost, favorable product mix, and lower restructuring charges and currency's positive effect. Return on sale increased to 14.1%. Excluding restructuring cost, return on sale was 14.5% versus 12.4% last year. Return on investment improved to a level to 26.5% versus 20.9% last year. Turning now to Specialty Chemicals on slide 11. Revenue was flat due to favorable currency effects, offsetting the impact of the divested Paper Chemicals business in Q2 and adverse price mix in several segments, mostly due to lower oil prices. The divestment will have an annual revenue impact of around EUR 150 million in 2015. Volume overall were flat. Growth in some segments compensated for lower demand in oil drilling segments.
Operating income was up 4%, supported by the benefit from further increased production at the new Frankfurt plant, lower cost, and operational efficiency through the business. Return on sales increased to 13.2% versus 12.6% in 2014. Return on investment improved to 17.2%. On a comparable basis, return on investment increased to 16.4% versus 15.1% in 2014. I want to mention that although the recent incident at the port in Tianjin in China did not affect us directly, it did result in several logistical constraints, including extended delivering times and additional costs. On slide 12, you see some business highlights from Q3 2015. Our Decorative Paints business launched a striking shade of color as color of the year for 2016.
Performance Coatings announced plan to double capacity as our Powder Coatings facility in Vietnam, and Specialty Chemicals aim to reduce our CO2 emissions as part of a new partnership with Eneco and Groningen Seaports. It's important to mention also that during Q3, we were, for the fourth year in a row, number one in the influential Dow Jones Sustainability Index for the material industry group, and this is a very positive achievement. Moving to slide 13 with the income statement for Q3. EBITDA increased 21% to EUR 590 million. This performance was achieved thanks to our improved performance in all of the BAs. Lower costs, reduced restructuring expenses, and favorable currency developments over contributed to the performance improvement. Operating income was up 30% at EUR 436 million.
Net financing expenses decreased by EUR 10 million due to lower external interest expenses following the repayment of a high interest payment bond in Q1 2015. The year-to-date effective tax rate was 27%, the same as last year. The tax rate was positively impacted by favorable one-time adjustment and the tax effect of the divestment. Excluding one-off items, the effective tax rate was 28%, equal to the same period in 2014. Net income attributable to shareholders was up 39% at EUR 285 million, and adjusted earnings per share increased 35% to 1.24. On slide 14, you have a summary of the cash flow statement for the quarter. Net cash from operating activities was EUR 583 million, which was 19% higher than last year, primarily due to higher profit.
Capital expenditures were higher than last year at EUR 163 million, although year-to-date, this was 3.7% of revenue equal to the same period last year. Net debt decreased to EUR 1.7 billion, below EUR 1.8 billion at the end of Q3 2014. The progress in Q3 clearly shows our improved cash generation, and we are confident we will, in 2015, be free cash flow positive after paying dividends. Turning to slide 15. We continue our disciplined approach to cash management. Working capital has been impacted by currency variations and seasonal increase. Performance Coatings continued to accommodate a temporary and planned inventory increase as part of the scheduled footprint optimization. Capital year-to-date was EUR 423 million of 3.7% of revenue equal to the same period in 2014. This is below the 4% expected for the full year. Moving to slide 16.
Our pension liabilities movement according to IAS 19 are shown on the slide. The funding status of the pension plans at the end of Q3 2015 was a deficit of EUR 0.9 billion versus EUR 1.1 billion at the end of Q2 2015. This result was due to lower asset return and further de-risking of pension liabilities, more than offset by the impact of inflation, top-up payments and discount rate. During Q3, a non-cash buy-in transaction was concluding for the ICI Specialty Chemicals pension fund with a EUR 59 million impact on other comprehensive income. We continue to actively manage our pension liabilities. Concluding now on slide 17. Strong performance improvement is again visible in the financial results of Q3 2015, with all businesses contributing positively. We were ranked number one on the influential Dow Jones Sustainability Index for the material industry group for the fourth consecutive year. Our market outlook remains unchanged.
Positive trends in North America, new improvement for Europe overall, as well as a challenging environment in some countries, including Russia, Brazil, and China. Based on the current rates of exchange rate, the positive impact of foreign currency is expected to moderate in the fourth quarter. The significant action taken in recent years forms a sound basis for further improved performance, and we are on track to deliver our 2015 targets. We also announced an interim dividend 6% up compared to last year. I also want to mention our upcoming events. Next week on October 27th in London, we will have our Capital Markets Day, and we will announce our Q4 and full-year results for 2015 on February 10th, 2016. This concludes our formal presentation, and I would be happy to take your question. Please limit your number of questions to a maximum of two so others can participate.
Thank you very much.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star followed by one. Please unmute your phone and record your name clearly when prompted, so I can introduce you for your question. To cancel your question, you may press star and then two. Our first question comes from Paul Walsh of Morgan Stanley. Your line is open.
Thanks very much. Morning, Maëlys. Morning, everyone else. I wanted to ask about the Tianjin logistical disruption that you mentioned in the third quarter and wondered if you could quantify if that had any material impact on that division, either volumetrically or from a profit standpoint. My second question really relates to where you go from here. Obviously, end market conditions are proving to be somewhat difficult in terms of lack of recovery, and the restructuring programs have sort of seen you through to this point. I mean, I'm just wondering what more there is left in the tank as we head into 2016 and the extent to which you can continue that progress. It looks to me like the returns targets are in the bag this year already. That was always a stepping stone.
Just any additional insights on what is still left to come or what annualize this next year would be helpful. Thank you.
Thank you, Paul, for your question. On Tianjin, I mentioned that we have a plant on Functional Chemicals in the area of Tianjin, and the large explosion have caused some strong disturbance in the harbor for all the logistics of import and outflow of products. Today, we're suffering from that, and it impacts this division, but overall, it's not material for the Specialty Chemicals. We'll have to see how this develops in the further weeks and months. Today it creates for this specific division, yes, some cost constraint and delay also on products. On your second question about the improvement and the lack of improvement of markets. We continue to see, and that we have mentioned for several quarters now, a challenging environment, and in particular in some of the emerging countries.
What we are doing is we are continuing on focusing on our program of improvement. You can see that the progress of the operating income is mainly coming from those improvement programs. Going forward, as we mentioned, we are now more moving to a continuous improvement mode. Already, this is something we're doing both in Deco and in Specialty Chemicals. Performance Coatings is still this year closing a certain number of sites and finalizing the restructuring of the whole organization. Moving forward, we still have the benefit. We always say that restructuring effect has an impact between one year and two years. We'll still benefit in 2016 from some of the program we have done this year. We're also continuing our transformation of our functions towards shared service, and that will also bring additional benefit.
That's great, Maëlys. Thank you very much.
Next we have Jeremy Redenius of Bernstein. Your line is open.
Hi. Good morning. It's Jeremy Redenius from Bernstein. Thanks for taking the questions. Firstly, just to clarify on what you said about restructuring charges for the full year. I heard you say EUR 100 million, now including the EUR 24 million related to the divestiture of Paper Chemicals. If I think about this right, that's basically EUR 24 million that's in incidentals of restructuring charges, and then basically around another EUR 76 million that will be just part of normal operations, and the sum total of those two is EUR 100 million. Secondly, could you talk about the pricing dynamics in Deco and Performance Coatings? I was, I guess, a little bit surprised by pricing being up 2% in Performance Coatings and down 2% in Deco. Could you talk about the parts of the business or the dynamic that's driving the differences between those two?
Okay, thank you. For the restructuring, you've done your math. What I just said is yes, it will be around EUR 100 million. We have done so far, as I mentioned, EUR 50 million and the EUR 24 million, that would be around EUR 74 million year to date. Depending on the exact amount, as I mentioned to you, around EUR 100 million, because we still have a quarter to go and those plan are adjusted as we go. You are in the ballpark of the amount. For the second question on price dynamic, on Decorative Paints, yes, you have a negative price mix. It's mainly coming from Europe. Our European business is a mix of developing Europe and also more emerging. In particular, we have in this part, Russia and Turkey that we mentioned remain challenging. That's where we see mainly the negative price mix.
In Performance Coatings, the positive effect is due to the fact we are both seeing stronger marine progression, and we also have a focus on higher market segments. This is more a mix effect than a price effect.
Can you describe any of the other segments that were stronger other than marine?
Well, we mentioned that we have a good performance in electronics platform and aerospace. Globally, the mix is changing not only by division but as I mentioned, also within division for higher margin product.
Okay. Thank you very much.
Next we have Tony Jones of Redburn. Your line is open.
Morning, everybody. Tony Jones, Redburn in London. I've got two. Firstly, going back to the mix effect in Performance Coatings. You, in the release, explained that there were lower oil and gas sales, but also there was reference to an expired contract supplying resins in North America. Could you explain whether either of those two effects also had a positive or negative impact on mix and margin? Secondly, my other question is, Deco pricing, it did go down a bit as we expected. Presumably, though, that's just cost pass-through to large box DIY. I think that's pretty well understood, I suppose the question is, should we expect that effect to accelerate in Q4 and Q1 as there's further pressure to pass through lower raw material costs? Thank you.
As we mention always, we know that lower oil price, now we're seeing after peak again, we're seeing since the summer, the oil price going down again. That has some positive impact in our raw material, of course it increase the price pressure. If it remains at this level, it's likely to increase in the future. We also have the impact in the challenging environments in our emerging country, of course, of price pressure. For the Performance Coatings, the oil and gas industry impact, the impact of the cut of spending from the oil company and their capital spending, is impacting strongly the volume of our Protective Coatings business. It's more the volume which is impacted. As I mentioned, the recent contract impact in North America is also more of a volume impact as well.
Just as a follow-up, those two volume effects have no impact on margin. The gross margin, for example, in the division, these two businesses are pretty similar.
We do not disclose the margin per division. Nevertheless, as I mentioned, those are really impacting our volume. On the price mix, as we say, part of the Performance Coatings strategy has been to restructuring heavily their organization and their industrial footprint. They also are focusing on the customer and the market with higher margin, introducing also new product. That's why I mentioned marine, because they introduce very innovative products, in particular with anti-fouling products with higher margin. That's why I say it's really a mix which is driven by the division to look after the more profitable business, that's where also you see a stronger improvement in the margin.
Thank you very much. Thank you.
Next we have Mr. Peter Clark of Societe Generale. Your line is open.
Yes, good morning. Thank you. Again, two questions. The first one on the volumes in Deco. You've pointed to places like Turkey and Russia being negative. Just wondering about West Europe overall. Obviously, France is still down, judging by what PPG was saying, but West Europe, including France, would that be flattish, something like that? If there's some guidance on that, and perhaps also China within Asia in terms of that. Then the oil and gas business, which is taking a hit on volumes. I think, again, PPG with the second quarter was pointing at them winning share in that market in North America. Just want to clarify that you weren't losing any share within that? Thank you.
Okay. First question, in Europe, as I mentioned, we see two dynamics more and more diverging between Western and Eastern Europe. Clearly the Eastern part, the emerging part, is really suffering. We mentioned in particular Russia and Turkey, but that also have an impact on all Eastern Europe. On the west side, we also have a contrasting trend. As I mentioned, the U.K. and the Netherlands are positive. On the other country, and in particular France, we're still seeing a very difficult construction market. We read a lot in the news that France start to be more positive, but on the construction market, we don't have really yet sign of this rebound. I would say overall, between this impact negative of Russia, Turkey, and France not recovering, that's why we say that Europe is not recovering overall.
On your question, the second question, sorry, was about the oil and gas. We are very strong on oil and gas. I don't comment normally on my competitor. We are on this market clearly a leader in protective. The fact that we are losing volume in oil and gas is not by losing market share, is really because of the market. We are not concerned by any market share loss in the oil and gas sector.
Okay, thank you. I sneakily threw in a third thing about China on the Deco volumes as well.
Yeah, I'm sorry. For China, as we say, globally our volume were up in Asia. In China, the construction market remains challenging and volatile also for one month to the other. This is, as we say, the China environment, not only for Deco, but also for the other business, is challenging right now.
Thank you.
Next we have Thomas Wrigglesworth of Citi. Your line is open.
Good morning. It's Tom Wrigglesworth from Citigroup. My two questions, please. Firstly, on the Specialty chem business, the chlorine plant in Frankfurt, is that now running at 100%? Is it fully ramped up? What further contribution can we assume from this going forward? Secondly, kind of more of a top-down question. In terms of the raw material benefit that you've had over the past quarters, what can be done to kind of retain that, the kind of margin improvement relative to raw materials going forward? Where are we on that cycle? Have we now seen all of the raw material benefit come through? Is that going to be less of a factor in the first half of 2016? Thank you.
Okay. Yes, on the chlorine plant in Frankfurt, I confirm you that we're fully on stream. We have the benefit of the new efficiency on this plant. On your question of raw material, as we mentioned, yes, we're seeing a lower raw material. As I mentioned, the oil dropping further after the summer, if they stabilize at this price, could continue to benefit further. Nevertheless, we have to mention the effect of foreign currency. We unfortunately have seen strong devaluation further, in particular of the Brazilian reals, the ruble, and the Turkish lira. All those countries that import some products which are denominated in dollar are suffering for that. That's reducing the benefit we can get from it. On the other end, as we just mentioned, for the oil and gas and Protective Coatings business, we had some negative effect on the volume.
The same for Specialty Chemicals. We have seen some negative effect in the volume for both, in particular our Surface Chemistry and our Functional Chemicals. We aim, of course, at trying to retain the benefit. As you see the Specialty Chemicals negative pricing, in some of the business we have some pass-through formula, therefore, this is reflecting the fact we have to pass on a part of the benefit.
Okay. Thank you very much.
Next we have Jaideep Pandya of Goldman Sachs. Your line is open.
Thanks. Just the first question, really. If I just look at your business today in terms of the SG&A cost to sales and take a 20% assumption for Specialty Chemicals, I get to around 36% for your coatings business. Which sort of leaves you with still some room to improve if you're going to benchmark yourself versus best-in-class peers. On my numbers it's about 2%. Can we expect that you, through the measures you're putting in place this year, by 2016 end, you will be touching distance with the best-in-class peers in the U.S. and Asia? That's basically my first question. The second question is, if you can just give us some indication of what is going on in Surface Chemistry, excluding oil and gas. What sort of volume trends are you seeing there, excluding oil and gas, will be very helpful. Thank you.
Okay. On your first question, indeed, we say that we are still in our journey of transformation. In particular for Performance Coatings, we launched the reorganization last year, which aimed at clearing a part of the top management, and also changing a part of the function structure with the fact we are putting in place some shared services, in particular in the finance function, we are still in this process. To answer your question, yes, there are room further for improvement and we have launched this plan and will continue also through further continuous improvement. On the second question on Surface Chemistry, as we mentioned, the oil and gas, the downturn is the main impact on the volume. On the other segment, overall, we see good progression, in particular in Europe.
Okay. Thank you.
This other sector, we have several sector in Surface Chemistry, I don't comment particularly on that, but we have the lubes business, we have mining, we have agro, that's all contributing.
Thank you. Very clear .
Next we have Christian Faitz of Kepler. Your line is open.
Yes, sir. Good morning, Maëlys. Just two questions, please. First of all, you mentioned in your earnings release with respect to Automotive Coatings that China and passenger car production softened in the quarter, which is obviously understood, how relevant is this to your refinishing business? The second question is, you mentioned that marine volumes benefited from new construction projects while maintenance and repair were impacted by lower freight rates. Obviously, that's also a no-brainer, what is the typical ratio for your business between new build and maintenance in the shipping business, ship coatings business? Thank you.
Well, on your first comment, of course, on the vehicle refinishing, I think because as you know, we are not only OEM business, of course the core production does not impact us directly as we are more on the vehicle refinishing, Specialty Coatings do provide a certain number of products to the OEM. That's why we mention it. I think it's also an indicator globally of the fact that consumer confidence and consumer spendings are lowering down in China. That's why we mention on the Specialty Coatings part more than the VR part. For the marine and new build, they are both relevant, of course, the difference is that on the maintenance, of course, it's coming on a more recurring basis, while the new build, of course, is just one-off effect.
We always have maintenance, which is a recurring business, this one is more stable. The new build, of course, is more linked to order book, what we are mentioning is that, yes, we have right now a good and positive contribution of marine, we see going forward some downward trend for future order intake.
Okay. Just to understand that business a bit better, is the split 50/50 between maintenance and new build or 20/80 or something? Can you give us an idea on that on average, longer term?
Well, we don't give the exact %, but usually I would say new build is larger than the maintenance build business.
Okay. Very helpful. Thank you.
Next, we have Nathalie Debruyne of Degroof Petercam. Your line is open.
Yes, good morning. Thank you for taking my questions. Actually, most of them have already been answered, but I just want to have some highlight actually on the CapEx, because you mentioned that you're actually doing better than forecast initially, which was for 4%, if I remember correctly. You're now at 3.7%. Is there any chance that you would revise the guidance downward, or do you still expect the 4% to materialize for this year? Can we also extrapolate that figure looking forward?
You're talking about the CapEx. Yeah, what we say that around the year, we want to be on the level of around 4%, and so far, we're still aiming at being at this level for the full year. As we mentioned, this is a level we had, I think 4.1% last year. It is considerably down compared to the peak we had in 2012. This is really a level where we are now putting efforts to be very disciplined. Okay, thank you.
Next we have Mr. Martin Evans of JPMorgan. Your line is open.
Yeah, thanks. It's just on the core business, really. I think we understand about the restructuring benefits you're getting on the margin now, but it's the sort of lack of growth in the business overall, both volume and price against weak comps, and whether you feel that now the restructuring is done or mostly done, you can turn your attention to sort of regaining what clearly has been lost market share because the world, as you know, is growing faster than you are. Leading on from that into next year, without the benefits, presumably of FX, some input cost savings, and now given what you're saying on demand in places like China, Russia and Latin, is it likely, therefore, that on an underlying basis next year, your profits go down? Thanks.
Commencing, just to come back on your comments about losing market share. I think what is important to see is where market was. You say that market are growing, but in all our market, we have faced a difficult environment. We are, as you know, a strong position in emerging markets, in particular in China, in Brazil. Some of the other competitors are not necessarily in the same market. We are not, as I mentioned, is OEM business, which has been a big part of the growth in a lot of region, though we don't feel that the loss of volume we have is however loss of market share. It can, of course, depend on each specific region, but however, we don't have lose a lot market share, the environment was not really favorable.
We continue to focus, of course, not only on the operating improvement, which is, of course, a big part of a strategy, but also on organic growth. So far as I mentioned, the market has not been favorable, but we have a strong commitment of the organization towards this growth through our commercial excellence program. Also through all the efforts we're continuing to put on both innovation, branding, and sustainability. As I mentioned in the call, we really believe sustainability, which is key part of our strategy, is important for business. We have seen many cases that thanks to our sustainability differentiation, we can win towards opening new markets or having better margin products. That continue to be a focus to drive the growth in a challenging environment.
Are you therefore for next year now internally forecasting that profits will go down in 2016 versus 2015?
I'm not making projection on volume, as you know, for the year to come.
I was saying profits or earnings, but I guess that includes volume. Okay, thanks.
Next we have Laurent Favre of Bank of America. Your line is open.
Hi, good morning. It's Laurent from. To some extent, a question that is going back to what Martin Evans pointed out and what Tom Wrigglesworth was talking about. Is there any link really between the lower restructuring charges of this year? We started thinking EUR 250, three months ago, you guided EUR 200, now it's EUR 75 for this year. How much of that is really you thinking that lower restructuring charges is a way of trying to focus the business back to growth? A year and a half ago at the Capital Markets Day, and fair enough, you were not there, but a year and a half ago, management was talking about going back to growth and commercial excellence. Since then, obviously, volumes have been going down. How much of that lower restructuring effort is really trying to compensate and focus the business back on the growth track?
Thank you for your question, Laurent. We always announce that the restructuring charges will be lower this year than last year. The EUR 250 was the amount of 2014. We never say that we'll do the same amount for this year. We initially guide between EUR 100-EUR 150. We will be in the lower range, more around EUR 100. As I mentioned, it's not because we have reduced our program, it's because at the end, if they are less costly that we anticipate, that's a good news that we're spending less on the restructuring. On the other hand, yes, as you mentioned, the focus on commercial excellence is not new. We have started to build a foundation on that and putting the team and particularly the commercial team, with a strong focus on growth.
As I mentioned, the market has not really turned in the way we were expecting. In particular, the drop on the oil price has really put a lot of pressure on all the oil and gas company, which has cut their spending massively. The slowdown and really the deterioration of the situation on emerging country is also something that was not forecasted, even though on our side, we started to point it out already 1 year ago.
Thank you. If I can, a second question on the gross margin development and the retention of lower raw materials. For about 12 months, I mean, since basically the OPEC decision, you've been flagging that the retention would be lower in chemicals, higher in paints and coatings. Margins this year of chemicals have actually improved as much as for the rest of the business, if I look at it on a pre-restructuring charge basis. Would you say that something else has played out in chemicals, or would you say that actually the retention of deflation has been better than you thought in chemicals?
As I mentioned, you see that the price mixing chemicals is negative. We say that there will be price pressure more in chemicals. The improvement of margin is really due to the efforts the chemicals has done on the continuous improvement business. I visited several plants. I was in Sweden recently, in the north of Netherlands at our Delfzijl plant, and I can see that really they implement what we call ALPS, our new process to improve and boost the performance at our site. There is really a lot of efforts that are going out on the ground, putting teamwork together when we have several units in the same site looking at all the improvements they can come in terms of efficiency, which has really an impact on the margin.
As I mentioned also on the CapEx, I was pleased to see in some of these plants that thanks to their efforts on improving the performance of the plant, they don't have to invest sometimes in additional new capacity because they are able to boost the performance of the plant itself. This is really the efforts of continuous improvement that are helping Specialty Chemicals to improve the margin. As you mentioned, especially for this year, the exceptional, the divestment of Paper Chemicals, but even without, you can see now that the return of sales of chemicals is at 12.8 on year-to-date, which is a good performance above their target of 12.
[Foreign language]. Thank you.
At this time, there are no questions on queue. I would like to hand the call back to our speakers.
Okay. Thank you very much for your attention, and I will pleased to see you next week for our Capital Markets Day on Tuesday in London. Thank you very much.
That concludes today's conference. Thank you all for joining. You may all now disconnect.