Good morning. Good afternoon and thank you for standing by. At this time, all participants are in a listen only mode. After the presentation, we will conduct a question and answer session. Today's conference is being recorded.
If you have any objections, you may disconnect at this time. Now I will turn the meeting over to the Director of Investor Relations, Mr. Lloyd Midwinter. Please sir, go ahead. Your line is open.
Good morning, and welcome to the AkzoNobel Q1 2015 Investor Update Conference Call. I'm Lloyd Midwinter, Director, Investor Relations. Today, our CFO, Maylis Castello, will guide you through our results for the quarter. We will refer to a results presentation, which you can follow on the screen and download from our website, axonobel.com. A replay of the call will be available for 30 days from 1 hour after the call has ended.
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 Melis, who will start on Slide 3 of the presentation.
Thank you, Lloyd. Good morning, everyone, and welcome. Our financial results for the Q1 of 2015 demonstrate that Sunnibel is continuing to deliver an improved performance in a challenging economic environment. Our strategy is working and its positive effects are becoming increasingly visible in our results. Revenue was up 6% and operating income 42% reflecting the positive effect of process optimization efforts, reduced restructuring expenses, lower costs and favorable currency developments.
Both returns are improving. Return on sale was up 190 basis points at 8.5% and return on investment was up 90 basis points at 10.6%. The net income attributable to shareholders was up 24% at €160,000,000 and adjusted EPS was 25% higher at €0.76 per share. The net cash flow was negative similar to the Q1 in previous year due to seasonality effect and pension top up payment. We continue to build on this strong foundation to further increase our profitability and remain on track to deliver our 2015 target.
I'll now go through the operational and financial results in more detail starting in slide 5. The Q1 is for ExxonMobil a relatively small financial quarter and therefore small fluctuation can have a relatively larger impact on results compared to other quarters. Despite this, Q1 2015 shows that we are continuing to deliver improved performance. Actually when we look at it, it's a record Q1. Revenue was up 6% due to 8% favorable currency effect, partially offset by 2% lower volumes.
There was no net impact from price mix effect or acquisition and divestment. Operating income was at 42% at $306,000,000 reflecting the positive effect of process optimization efforts, reduced restructuring expenses, lower costs and favorable currency developments. Restructuring charges were €11,000,000 during the quarter compared to €44,000,000 last quarter. For the full year, we expect restructuring charges to be around 1% in revenue in line with prior guidance. Raw material prices were lower.
However, in many markets, foreign currency effects have adversely impact raw material costs. Return on sale was 8.5%, up 190 basis points from 6.4% in 2014 and if we exclude the restructuring cost, the return on sale was also up 110 basis points higher at 8.8%, up from 7.7% last year. This is the 8th consecutive target of improved return on sales. Return on investment increased to 10.6% from 9.7% last year. The slide 6 shows the quarterly trends for volume and pricemix developments.
Economic uncertainty continues to impact all business areas. Trends in North America remain positive, while Europe did not improve and market condition remained challenging in many countries such as Russia, Brazil and China. As mentioned before, Q1 similar to Q4 is for ExxonMobil a relatively small financial quarter. Volumes were down 2% overall with 3% down for both decorative paint and performance coating due to a slow start of the season, although flat for Specialty Chemicals. Price Smith was flat during the quarter, consistently with Q4 2014 because mainly due to the German store divestment and the increase in Performance Coatings.
I now go into more detail on each of the business area. In slide 7, you see the highlights for Decorative Paints. Revenue in Decorative Paints increased 3% compared with 2014 due to 7% favorable currency effect, partially offset by lower volume. Price mix continued to be influenced by the sale of the German stores. Also this was partially offset by positive price effects in Latin America.
Volumes for the Q1 were up in Latin America, but down in Europe and Asia due to a slow start of the season. Revenue was down 4% in Europe due to lower volumes and adverse price mix, including the impact from the sale of the German stores that was concluded in Q1, 2014, offset by favorable currency effects. Markets in Continental and Eastern Europe were challenging. Voyage's operational efficiency improvement program led to a lower cost base and our new operating model for Europe is in place and working well. In Latin America, increased costs on imported raw materials have posed serious challenges to the business, but revenue increased by 19% due to favorable currency effects, volumes and price mix.
Improvement action also contributed to the results. Revenue in Asia increased by 10% due to favorable currency effects, but partially offset by lower volume and adverse price mix effects. Demand in several Asian countries was encouraging, while China experienced a soft start of the year. Operating income was €50,000,000 compared to €17,000,000 last year, so significantly higher due to benefits from our new operating model, lower restructuring costs and strict cost containment and favorable currency development. Restructuring charges for the quarter were €5,000,000 versus €22,000,000 last year.
We are moving to a continuous improvement mode. Return on sales increased to 5.6%, up from 2% in 2014 and return on investment also increased to 9.8% versus 5.9 percent in 2014 on a comparable basis if we exclude the gain on the divestment of Building Adhesive. Please remember that Q1, Q4 is typically a seasonally weaker financial quarter for figurative paint. For the Performance Coating on Slide 8, revenue was up in all businesses in Performance Coating, benefiting from favorable currency effects. Volumes was up were up in Automotive and Specialty Coating although down in the other businesses.
Volumes increased in North America and declined in other regions with performance across segments mixed regionally. Revenue for Marine and Protective Coating was up 9% due to favorable price mix and currency offsetting volume declines. Protective Coating faced market challenges in both the Oil and Gas and AV Industry segments resulting in lower volume compared to the previous year. Overall volumes grew for Protective Coating in North America and China offset by the other region and marine volumes decline. Revenue was up 13% for Automotive and Specialty Coatings due to volume growth, pricemix and favorable currency.
Vehicle Refinishes volume increased across all regions. Specialty Cutting has a strong first quarter for Consumer Electronics in Asia and Volumes Green Aerospace segment. Industrial and Powder Coaching revenue was up 5% due to favorable currencies offsetting declining volume and price mix. Metal Cartings volume were flat as a result of growth in the Packaging segments being offset by declines in the Asia and Europe coil segment. Packaging coating grew across all regions.
A weak start of the year for construction in China resulted in volume declines for Powder Coating, but this was mitigated by growth in North America and Europe. Wood Coating grew in Europe but declined in other UBijun. Operating income for Performance Coatings was €170,000,000 up 35% due to cost reductions generated by improvement activities including our delayed and simplified business structure, cost control measures and currencies. Restructuring costs were $6,000,000 for the quarter compared to $15,000,000 last year. Return on sale was 11.9% for the quarter, up from 9.6% last year and return on investment increased to 22.9% versus 21.4% in 2014.
The slide 9 shows our segment reporting for Performance Coatings updated following the implementation of a delayed and simplified business structure. We have provided in the appendix to this presentation a restatement of revenue per quarter for the new segments. Moving to Specialty Chemicals on slide 10. The revenue for Specialty Chemicals was up 6%, mainly due to favorable currency effect with both volumes and price mix flat on previous year. Volume were flat due to a mixed and volatile picture across segment and region.
Development in Bleaching and Killage segment positive while volumes in oil drilling were lower. The U. S. Continued to show good developments where we had more modest growth in China. Functional Chemicals revenue increased by 5%, driven by positive currency development, partially offset by slower demand in the polymer industry business continued to fully implement the comprehensive improvement program launched in 2013.
Revenue decreased by 4% for Industrial Chemicals due to lower volume and temporary inefficiency including the disruption in the Rotterdam supply chain, partially compensated the OPR by an insurance payout. The new chlorine plant in Frankfurt is now in operation. There is a continuous focus on improving production availability. Revenue for surface chemistry was up 11%, mostly due to foreign currencies. Challenging condition in China and the oil drilling segment were mostly offset by positive development in other growth segments.
This resulted in nearly flat volume overall compared with 2014. Pulp and Performance Chemical revenue was up 12% due to positive currency and strong development in gross products such as Expensal and Silica and good bleaching segment. Specialty Chemical further improved its profitability. Operating income are up 21% to $163,000,000 due to improvement action, cost containment and lower restructuring costs. Investment in functional capabilities are driving continuous improvement.
The restructuring costs were 0 for this quarter compared to $7,000,000 last year. Return on sale was up at 12.6% in the quarter from 11% for the same period and return on investment also increased to 15.3% compared to 13.3% in 2014 on a comparable basis. In 2014, Specialty Chemicals announced the intent sale of its paper chemical portfolio for €153,000,000 The business is currently part of the Pulp and Performance Chemical and the transaction is expected to be completed in Q2 of this year. Moving to slide 11 with the income statement. The EBITDA increased by 27% to 462,000,000 dollars and operating income was 42% higher at $306,000,000 Net financing expense were $4,000,000 higher, but the internal interest expense were down and should continue to reduce in 2015 due to the repayment of an expensive bond in March 2015.
This was more than offset by higher interest on provision. The Q1 effective tax rate is 31%, compared with 23% for 2014. The tax rate in 2014 Q1 was positively impacted by an adjustment to previous year. Though if we exclude one off item, the effective tax rate is 29% for both year. Adjusted earnings per share increased 25% to €0.76 up from €0.61 from the same period last year.
Turning now to a summary of cash flow on slide 12. The net cash outflow from operating activity was minus $622,000,000 for Q1, higher than in 2014 due to currency effect on working capital and pension top ups as well as changes in provision mostly due to restructuring cash payment and the payment of legacy items settlements. As a consequence, net debt increased from $1,606,000,000 at year end to 2,270,000,000 We continue our disciplined approach to cash management and this negative quarter as you know is traditional due to the seasonality effect of our working capital and also the payment of the pension top up. The change in working capital contributed to an outflow of 576,000,000 dollars due to the currency impact of a weaker euro and the normal seasonality effect of working capital, mainly in Deco. Within Performance Coatings, we accommodated plant inventory increase as part of our scheduled footprint optimization.
It is important to note quarter volatility should be expected due to significant seasonal impact during the year with higher requirement in anticipation of the peak summer season, but we continue to focus on improving our working capital. During the quarter, top up payment for $300,000,000 have been made to certain UK defined benefit pension plan including the ICI pension and quartile CPS and you add that in the tranche of provision. Other changes in provision were mostly due to restructuring cash payment and the payment of legacy items. Capital expenditure was slightly higher than last year at $123,000,000 During the quarter, we repaid a $622,000,000 bond with a coupon rate of 7.25 percent will continue to improve our net cost of debt. Moving to slide 13 on our pension liabilities according to EIF 19.
The funded status of the pension plans at the end of the quarter was $790,000,000 slightly lower deficit than end of last year. Annual corporate payment of $330,000,000 were made into the ICI pension plan and CPS pension scheme. Asset returns and lower inflation offset the negative impact of lower discount rates. Further derisking of the ICI pension plan in the U. K.
Was completed during the quarter. A buy in transaction with legal and general for around £700,000,000 I mean £500,000,000 of pension liabilities, which give rise to a one off impact of €110,000,000 in our balance sheet. When combined with the previous buy in transaction conducted in 2014, this cover around £4,400,000,000 equivalent to around €6,000,000,000 or approximately 45% of the total ICI pension fund liability. A significant part of the overall defined benefit obligation risk has now been edge although proactive management on the pension liability will continue. The triennial review of the ICI pension in the UK is ongoing and we expect to conclude negotiation during the first half of twenty fifteen.
Moving to Slide 18 to conclude, our results for the Q1 of 2015 demonstrate that AkzoNobel is continuing to deliver an improved performance in a challenging economic environment. The positive effects from improvement programs and lower restructuring charges are becoming increasingly billable in our financial results, including higher return on sale and return on investment. We anticipate exchange rate movements and lower growth rates in high growth economies will principally determine the dynamics of 2015. The preparations made in 2013 2014 form a sound basis for improved performance and we are on track to deliver our targets for 2015. This concludes our formal presentation and would be happy to take your question now.
Please limit your number of questions to a maximum of 2, the other can participate. Operator?
We will now begin the question and answer session. We have a radio question which comes from the line of Tony Jones. Please go ahead. Your line is now open.
Good morning, everybody. Tony Jones, Redburn. Two questions. Firstly, on margin. In the gross profit expansion, I think that was about €140,000,000 Can you indicate what the gains were from reduced fixed costs and also transaction impact?
And then secondly on cash flow, with the free cash flow a bit lower and this FX impact likely to linger for another quarter or 2, can you just confirm whether AXO is still on track to get cash flow above the cash out for the dividend over the year? I didn't see that in the release this morning. Thank you.
Okay. So on your first question on the improvement of margin, the quarter as you know we don't give a precise split. But as I mentioned, the main driver for the margin improvement is coming from the reduction of our restructuring expense. I mentioned that we are €44,000,000 last year down to €11,000,000 So this is a €33,000,000 impact. And we also have the benefit from all the plan we have done that is really delivering.
And those are the main items that are explaining the improvement. The rest being there is also, of course a foreign exchange part. But on the ratio and the improvement of the ratio as you know the foreign exchange doesn't play that much. On the second question on the free cash flow, as I mentioned Q1 is always a small quarter and very negative in negative in term of cash flow because we are combining the lower quarter in term of activity in particular for Deco and we also had the seasonality effect of the working capital with the building up for the season in Deco. And on top of that, we are paying the full amount of our pension top up both for ACI and quartiles as I mentioned €330,000,000 So all that combined explain why these large cash outflow.
For the rest of the year, we are still aiming at being cash positive. So we're still confident that we will achieve that. We still focusing on working capital on discipline on CapEx and we will also have the divestiture of the chemical paper business.
Okay. Thanks.
Thank you. We have now another question, which comes from the line of Jeremy Rodenius. Please sir, go ahead. Your line is now open.
Hi. It's Jeremy Rodenius from Bernstein. Thanks for taking the questions. The first question is about pricing. I'm wondering if you can help us split out really kind of the underlying price improvement in the quarter versus pricing that was really solely achieved just to try to offset depreciating currencies in emerging markets?
And then secondly, on restructuring charges, I see that they've come in relatively low for the quarter, but you're still guiding for roughly $150,000,000 for the year. Can you talk about the restructuring program that might be underway throughout the year that would generate significantly more restructuring charges later than the year. If they've taken a bit of a pause for now, I just want to get a bit better feel for what types of programs might be kicked off and when they might be kicked off? Thanks very much.
Okay. Thank you, Jeremy for your questions. So the first one
on the pricing effect. In decorative paints,
as we mentioned, we have a effect. In decorative paints as we mentioned we have a minus 1%, but as I mentioned a big part is linked to the sale of our German store in Q1 last year. This effect will then stop in the future quarter. And as you know that's where we put this impact. So if we this was the main driver negative.
It was compensated in particular with better pricing in Latin America as you mentioned for compensating some exchange rate effect. We also add the same on other country with particular in Russia where the currency devaluates. So overall, if we so decorative paint managed to kind of hold on overall the price. On Performance Coating, we see a +1% on pricemix, which I think is quite a good achievement in the current environment and the pressure on price. So this is quite positive.
And in Specialty Chemicals, basically, we were more flat. We're starting to see, of course, some pressure overall in chemical on pricing. Therefore, they also managed to have a zero price mix. It's quite a good achievement. On your second question about restructuring, yes, as I mentioned, the Q1 was a low quarter, only 11,000,000 dollars but restructuring is not linear over the year.
So we're still aiming to be around 1% of the sale. As we indicated, both decorative paint and specialty chemicals are now moving more to a continuous improvement mode. And therefore, the large parts of the restructuring this year are dedicated to Performance Coatings who have announced end of last year the new structure with delivering of the top management and now through 2015, we are implementing these restructuring through the whole organization and the different geography and the other part is also that we're continuing the implementation of our shared service in particular for all our function like HR, I'm finance and this is also continuing over the year. So that's the 2 area where we will concentrate our restructuring efforts.
Maybe just to answer my ask my first question a little bit differently. So in the emerging markets or in markets where you had significant currency devaluation, were you able to largely offset that devaluation through price increases?
In those markets, as I mentioned, in particular Latin America, Russia or Turkey, we are trying again to compensate part of the devaluation by price increase. But of course there is a limit to that. The base when you have a very strong devaluation as we've seen in some of the country, you cannot always completely offset the devaluation.
Okay. Thank you very much.
Thank you. The next question comes from the line of Peter Clark. Please Peter, go ahead. Your line is now open.
Yes. Good morning. Thank you. Two questions again. First of all, I'm going to re ask what I asked I think in February about China particularly on the Deco side where the volumes obviously have taken a bit of a dip in the Q1, I don't know, maybe a couple of percent, maybe 4% or something.
Just your outlook for the full year on the China Deco. And then tied on that, the outlook for China, I guess, just generally on the Coating side. And then in Europe, again, on the Deco side, the volumes look like they've fallen maybe 3%, 4% or something adjusting for the currency similar to PPG. You have the softer comp certainly than them. I know it's a very seasonally weak quarter.
Just where you feel the business is going as we're obviously well into Q2 already? Thank you.
Thank you, Peter. So for China on the Deco volumes, we had a slow start of the season. And as I mentioned, it's just the start. So it's difficult to give a full guidance. But yes, the start of the year was slow and globally, but this is not a surprise and we'll also announce it end of the year and you can read it in most of the news and journalists.
China globally is slowing down even though they remain with a much higher growth rate than anyone, but there is definitely in slowdown and therefore we remain cautious, but we'll continue to be very active. We have new products introduction and very good position there. So I think it's a market we are looking carefully as being one of the our largest market for Deco, but it's a little bit difficult to give a complete view how it will develop. So it will remain cautious there and we'll see how it will develop in Q2, which is as you know, the real big season. For the Europe, on the volume, we had lower volume, but there the mix also we have as you know Eastern Europe has been affected by the situation in Russia and in the rest of Europe, it's a mix with different dynamic between the country.
Overall, we're seeing that in Europe is still kind of the global mood in Europe with all the uncertainty that going around with still Greece, with what I mentioned in Russia, with even now people talking in the UK as public discussion of exit, all that creates a little bit of disturbance. So we have not seen yet a recovery in Europe. And but again, there it's a small quarter. So we'll have to see how we develop in the rest of the season. We are pretty much active.
We are launching, although in the UK, we are making new campaigns, new products introduction, and we're focusing on commercial excellence to boost our volumes. And the last question, there was no, okay. That was covering, I think,
one of the questions. Yes. It was just on your
last time.
Thank you. Thank you.
Next question. Thank you. Next question comes from the line of Patrick Lambert. Please Patrick go ahead.
Hi, good morning and congrats. Two questions for me. Again a bit more color on the bridge of EBIT in Q1 2015, €90,000,000, €33,000,000 coming from less pip. Can you comment a bit more on the €60,000,000 €60,000,000 in terms of FX, raw mats, inflation and savings? I know you're not going to give the absolute numbers, but the qualitativequantitative comments would be helpful.
That's question number. One second part of the question, the liabilities on the balance sheet are basically flat versus Q4 despite a pretty large outflow in the cash flow. Is that just FX or visible to it? Thanks.
Okay. So on the British EBIT, as I mentioned, we don't give the exact split. But as I mentioned, the efforts of the improvement of our program, if you recall last year, we had around €200,000,000 of benefit in 2014. We're continuing this year to benefit from the past restructuring and all the program we have implemented. So this is a major part of the improvement, the benefit from our restructuring improvement.
And as I mentioned, the lower restructuring, which is 33,000,000 for the RASP, we have, of course, a little bit of FX on the raw material side, as mentioned. Globally, for this quarter, it's a modest, it's positive, but modest as we mentioned, we expect there is a delay effect of impact in raw material and we also had negative impact on raw material cost because of the FX in emerging country versus the dollar. So overall, this part is smaller. So the large part of the increase, as I mentioned, is mostly coming from the restructuring and the lower restructuring expense.
So that's the same win rate quarterly as last year?
I think we will update you in the full year. But as I say, we'll continue the improvement. So then you can make your own estimate. On the cash, can you repeat exactly the question?
The overall liabilities on the balance sheet stays above €4,700,000,000 I think flat versus Q4 despite €410,000,000 outflows. Is there anything that I missed or is FX driven?
No, I think as you know on the balance sheet, yes, we had a very strong FX impact that impacted the whole balance sheet and also our invested capital per se. The working capital has been really also affected. On the equity part, as we mentioned, there is the impact of the other comprehensive income of the buy in from the ICI pension fund we mentioned. But there is nothing I mean, there is nothing unusual. So I haven't I don't see which number you're comparing, but to be honest, it's probably mainly the currency effect, which has been very largely impacting.
Okay. Thank you.
Next question? Thank you. The next question comes from Laurent Treve. Please go ahead. Your line is now open.
Yes. Good morning. Question on the Read and Protective where you had volumes down year on year. My understanding was that this should be a late cyclical business and you were still sort of benefiting from the small bump early last year in the marine cycle when the oil and gas CapEx piece coming off, but really that should be more of a H2-fifteen, 2016 topic. So I'm just wondering if you could talk a little bit more about that business and how we should think about it for the next 12 months.
Thank you.
Well, on the Marine and Protective Coating, as we see globally, we are up, but this is mainly due to favorable price mix and currency because the volume mainly declined there. We already start to see the impact on the oil and gas global activity. A lot of major oil company has announced a slowdown on the investment and therefore there has been already some impact. And though we had lower volume, In the marine, we also see volume declines and this is mix of course depending on the different region. But no, we already start to feel the market movement.
Looking at the margin in that in the whole coatings division, which has been and Q1 last year was fairly low and then Q2, Q3, Q4 basically was better Q1 this year below Q2, Q3, Q4 if you exclude the charges. Is that driven by that mix and the fact that Marine and Protective was higher margin historically and has been under more pressure? Or is there something else in that division maybe I don't know volumes maybe something else that is constraining the margin improvement again excluding charges?
Well, in the improvements you can you have a visible improvement of the return on sale and the return on investment. Performance Coatings in 'fourteen as you know has implemented a new business structure delivering its organization and also focusing a lot of margin management. So focusing on the most profitable segment, we're seeing and we continue to see a price mix positive and they also benefit from lower cost because they really work a lot on it. We have done a lot of consolidation of site. Last year, we closed and or stopped some sites to consolidate on other sites around 9 sites.
And this year, they have also 6 new sites which are under closure and that's also why we have explained that our working capital was up in Performance Coaching because when you do those type of site movements, you need to plan that, you need to build up some inventories. So that's the result of it. But of course, it's also benefited on the margin improvement side and that's in all the different business.
Thank you.
Next question. I don't know how
much of that is.
Next question comes from the line of Mutil Gundogan. Please go ahead. Your line is now open.
Yes, good morning. I have 2 bit of nitty gritty questions. The first is on the other line. The OPI here has been volatile in the last quarters. So I was wondering if you can give us some guidance for the full year or what you believe is a recurring number per quarter?
And the second question is on the associates line. I know we're talking very small numbers here, but I saw a negative contribution from these associates and joint ventures versus a positive contribution historically. So just wondering what is driving that and when and if that will recover? Thank you.
Okay. So on the other on the line which is the associate, you mentioned we had done some portfolio adjustment on our joint venture and that's why we had positive last year, which divestment of small joint venture and specific gain. And this quarter, on the contrary, we have some negative effect. But this is not supposed to continue. It's rather one off effect.
Then we will come back to a more, I would say, normal contribution. So it's really just adjustments. On the other, I guess, you're talking about what the operating income in other activity. Is that what your question? So the main difference as you can see is coming from insurance.
In this line, we have some always payment and outflow from our insurance and this is mainly due to a negative effect in 2015 where we have and we mentioned that in the specialty chemical, we had some disruption in our supply chain in Rotterdam and part of that is self insured with our captive insurance and therefore we have a positive effect in the chemical and here you see the negative internal effect. So globally it's due to and that's the main reason to this impact on the activity of Rotterdam and the insurance. On the rest of the costs, the corporate costs are slightly up. But this is mainly due well, they have of course effects, but the rest is due to the fact we are still implementing as I mentioned, our functional transformation and we have some costs related to the implementation of our shared service. But if we look overall of our different functional cost, the rest which is also embedded in the function, we are decreasing quite substantially our global functional cost.
Okay. Thank you.
Thanks.
Thank you. The next question comes from Jaideep Amdia. Please go ahead. Your line is now open.
Yes, thanks. A couple of questions. First of all, if I just look at your quarterly development, basically, it's sort of around CHF 40,000,000 restructuring benefit and then CHF 33,000,000 which you've obviously stated, because you're sort of stating that the majority of the year on year improvement is via restructuring benefits and lower restructuring costs. And so if I look at last year, you had sort of a net €100,000,000 benefit. So are you sort of saying that this year we should expect a benefit more than €100,000,000 Is that your message?
Or have you had increase in inventories, so I. E. The minus 2% volume number that we see is actually not that much of a bigger hit on the gross margin? That's the first question. Question then is really just on your return on invested capital target of 14%.
I mean last year you were around 10% and sort of we've been between the 10% to 11% range. So by the year end, if you have to get to 14%, can you just work us through what are the key drivers that we should be looking at how you will get to the 14%? Thank you.
Well, again, on your first question, I think you're trying again to get the detail. As I say, we do not provide the exact split. Therefore, I just mentioned and I will come back to what I said previously. The main part is coming from our improvement of the the improvement effect of our program, the reduced restructuring. There is of course all the other variable playing.
We have the positive effects of course that you see also in the revenue. We have some inflation. We have some, as I mentioned, a small impact of raw materials. So but I'm not providing you the exact detail on this Q1. For your question on return on investment, yes, the return on investment is at 10.6, but you have to bear in mind, it's an average moving.
Therefore, you take the first quarter and then the results of the past last quarter. And if you recall, Q4 was Q4 2014 was low because we had some exceptional items. Therefore, the more we are moving the year, well, more the effect of the past year will disappear. So if we look at the full ROI, it will have to reach it during the year and that will mainly be done as we mentioned a role into the return itself because you have both a role into the return itself because you have both the top and the bottom of the equation that is impacted. So it's mainly due to our improvement, the improvement program we have launched this year and the lowest restructuring that we're expecting that will boost and will enable us to reach this target.
Maybe just another way to ask the first point here is, I was just trying to understand if you had any extraordinary inventory buildup in Q1 because obviously the cash flow number was slightly worser. So which has helped you on the gross margin because gross margin is 160 basis points? Or would you say that there's no abnormal inventory buildup here in the Q1 break year on year? So volume a contribution was negative because volume was minus 2%.
As we always mention on the inventory side, on the working capital side, you have seen some inventory issue and that we mentioning it's mainly in Performance Coaching that we have this effect. In Deco, we are building inventory, but this is a normal seasonality effect. On the raw material side, as we always say, there is a delay effect and that's why Q1 was not that much impacted by raw material. And there we have, of course, the inventory effect of the past inventory with higher costs. So that's where we see an inventory impact on the OPI bridge.
But this is nothing to do with extraordinary buildup of inventory. As I say, the inventory part is mainly linked to our operation.
Okay. Thank you so much. Thank you.
Thank you. The next question comes from the line of Thomas Gilbert. Please go ahead. Your line is now open.
Thank you very much. Good morning for taking. Two questions. First one, very dry. Can you quantify the insurance benefit in Specialty Chemicals versus the insurance hit on the corporate line, which are obviously then related?
Is sort of €10,000,000 €12,000,000 the right number to look at? The second question is, can you just talk around the U. K. Market, campaigns market specifically, how you see the 2015 panning out, especially in terms of the different channels and the quality of what you're selling and sort of the relative share position where you can already have a comment how the negotiations with in the mass market with the retailers went for 15? Just a bit of color on the U.
K. Paints market please. Thank you.
Okay. So now on the insurance, I don't provide the precise answer, but you can make your own calculation as I said and you did, but I will not give you the precise figure. On the UK campaign, as I mentioned, I think you can see it on the way, we have launched a new campaign for our main products, which is Deluxe. At this stage, we do not provide precise information about our negotiation with our main customer in the UK. So the only thing we can say is that UK remain one of our largest and more dynamic market.
In Europe, we are doing quite a lot of marketing action there. It's part of our commercial focus for the year, but we are just at the beginning of the early start of the season. So I cannot give you too many comments and give you detail on any of the negotiation.
Can I still try? On the new campaign, have you set for the campaign, have you I'm an ICI analyst back 10 years. It was different than the prices were usually set early in the year and then kept for the whole year. Are you saying that for the new campaign you're still in negotiation for shelf space and pricing for Dulux for 2015? Is that what I is that did I understand that correctly?
We do not give and you could understand too much, we do not give this detail of information.
Okay. Thank you very much.
The next question comes from the line of Paul Walsh. Please go ahead.
Thanks very much. Good morning, Miley. Good morning, Lloyd. Two questions from my side. Can you just talk around raw materials, Miley, particularly within the context of your pricing expectations for the year?
So do you think you can keep pricing stable as you saw in the Q1? What's your current raw material basket showing you for 2015? And secondly, just anecdotally PPG made some comments around expecting a slightly better Europe going forwards. I was wondering whether or not you were seeing anything in your businesses to suggest the seasonally stronger Q2 was going to show a slightly better volume trend in Europe or not? Thank you.
Okay. So first question on raw material. As we mentioned raw material were lower in this Q1 mainly the one related to oil, but the impact is not yet and we show you that in the last quarter. There is a delay effect and therefore for this quarter it's still limited. Going forward we might see a little bit more benefit if the oil price remain low, but you've seen also that the oil price even if it's too low had quite increased in the past months compared to the very low level of January.
So there's also some volatility there. So there's definitely we see this still effect. And as we mentioned, Q1 impact is