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. To ask a question, please press star one. 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 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 be available for 30 days from one 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 Maëlys, who will start on slide three of the presentation.
Thank you, Lloyd. Good morning, everyone, and welcome. Our financial results for the first quarter of 2015 demonstrate AkzoNobel 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 Sales 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 EUR 160 million, and adjusted EPS was 25% higher at EUR 0.76 per share. The net cash flow was negative, similar to the first quarter 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 five. The first quarter is for AkzoNobel, 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'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 pricing effect or acquisition and divestment. Operating income was at 42% at EUR 306 million, reflecting the positive effect of process optimization efforts, reduced restructuring expenses, lower costs, and favorable currency developments.
Restructuring charges were EUR 11 million during the quarter compared to EUR 44 million last quarter. For the full year, we expect restructuring charges to be around 1% in revenue in line with previous guidance. Raw material prices were lower. However, in many markets, foreign currency effects have adversely impacted raw material costs. Return on Sales was 8.5%, up 190 basis points from 6.4% in 2014. If we exclude the restructuring costs, the Return on Sales was also up 110 basis points higher at 8.8%, up from 7.7% last year. This is the eighth consecutive target of improved Return on Sales. Return on Investment increased to 10.6% from 9.7% last year. The slide six shows the quarterly trend for volume and price mix developments. Economic uncertainty continues to impact all business areas.
Trends in North America remain positive, while Europe did not improve, and market condition remains challenging in many countries such as Russia, Brazil, and China. As mentioned before, Q1, similar to Q4, is for AkzoNobel, a relatively small financial quarter. Volumes were down 2% overall, with 3% down for both Decorative Paints and Performance Coatings due to a slow start of the season, although flat for Specialty Chemicals. Price mix was flat during the quarter, consistently with Q4 2014, mainly due to the German stores divestment and the increase in Performance Coatings. I now go into more detail on each of the business area. In slide seven, 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.
This was partially offset by positive price effects in Latin America. Volumes for the first quarter 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. Various 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. 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, partially offset by lower volume and adverse price mix effects. Demand in several Asian countries was encouraging, while China experienced a slow start of the year. Operating income was EUR 50 million compared to EUR 17 million last year, significantly higher due to benefits from our new operating model, lower restructuring costs, strict cost containment, and favorable currency development. Restructuring charges for the quarter were EUR 5 million versus EUR 22 million 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% in 2014 on a comparable basis if we exclude the gain on the divestment of Building Adhesives. Please remember that Q4 is typically a seasonally weaker financial quarter for Decorative Paints.
For the Performance Coatings on slide eight, revenue was up in all businesses in Performance Coatings, benefiting from favorable currency effects. Volumes were up in Automotive and Specialty Coatings, 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 Coatings was up 9% due to favorable price mix and currency offsetting volume declines. Protective Coatings faced market challenges in both the oil and gas and Aviation industry segments, resulting in lower volume compared to the previous year. Overall, volumes grew for Protective Coatings 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, price mix, and favorable currency. Vehicle Refinishes volume increased across all regions.
Specialty Coatings has a strong first quarter for consumer electronics in Asia and volumes grew in Aerospace segment. Industrial and Powder Coatings revenue was up 5% due to favorable currencies offsetting declining volume and price mix. Metal Coatings volumes were flat as a result of growth in the packaging segments being offset by declines in the Asia and Europe core segment. Packaging Coatings grew across all regions. A weak start of the year for construction in China resulted in volume declines for Powder Coatings, but this was mitigated by growth in North America and Europe. Wood Coatings grew in Europe but declined in other regions. Operating income for Performance Coatings was EUR 117 million, up 35% due to cost reductions generated by improvement activities, including our delayered and simplified business structure, cost control measures, and currencies. Restructuring costs were EUR 6 million for the quarter compared to EUR 15 million last year.
Return on Sales 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 nine shows our segment reporting for Performance Coatings updated following the implementation of a delayered 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. Volumes were flat due to a mixed and volatile picture across segment and region. Development in bleaching and silicate 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. The 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 OPI 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 Chemicals revenue was up 12% due to positive currency and strong development in growth products such as Expancel and Silica and good bleaching segment. Specialty Chemicals further improve its profitability. Operating income are up 21% to EUR 163 million due to improvement action, cost containment and lower restructuring costs. Investment in functional capabilities are driving continuous improvement. The restructuring costs were zero for this quarter compared to EUR 7 million last year. Return on Sales 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 sell of its paper chemical portfolio for EUR 153 million. The business is currently part of the Pulp and Performance Chemicals, 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 EUR 462 million, and operating income was 42% higher at EUR 306 million. Net financing expense were EUR 4 million 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, but the tax rate in 2014 Q1 was positively impacted by an adjustment to previous year. If we exclude one-off item, the effective tax rate is 29% for both year. Adjusted earnings per share increased 25% to EUR 0.76, up from EUR 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 EUR 622 million 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 item settlement. As a consequence, net debt increased from EUR 1,606 million at a year-end to EUR 2,278 million. 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 a net flow of EUR 576 million due to the currency impact of a weaker EUR and the normal seasonality effect of working capital, mainly in Deco. Within Performance Coatings, we accommodated planned 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. We continue to focus on improving our working capital. During the quarter, TOP-UP payment for EUR 300 million have been made to certain U.K. defined benefit pension plan. Including the ICI Pension and Courtaulds CPS. You add that in the change 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 EUR 123 million. During the quarter, we repaid a EUR 622 million bond with a coupon rate of 7.25%, will continue to improve our net cost of debt. Moving to slide 13 on our pension liabilities, according to IAS 19.
The funded status of the pension plans at the end of the quarter was EUR 790 million, slightly lower deficit than end of last year. Annual TOP-UP payment of EUR 330 million were made into the ICI Pension Fund and CPS pension scheme. Asset returns and lower inflation offset the negative impact of lower discount rates. Further de-risking of the ICI Pension Fund in the U.K. was completed during the quarter. A buy-in transaction with Legal & General for around EUR 0.7 billion, I mean GBP 0.5 billion of pension liabilities, which give rise to a one-off impact of EUR 110 million in our balance sheet. When combined with the previous buy-in transaction conducting in 2014, these cover around GBP 4.4 billion, equivalent to around EUR 6 billion, or approximately 45% of the total ICI Pension Fund liability.
The significant part of the overall defined benefits obligation risk has now been hedged, although proactive management on the pension liability will continue. The triennial review of the ICI Pension Fund in the U.K. is ongoing, and we expect to conclude negotiation during the first half of 2015. Moving to slide 15 to conclude. Our results for the first quarter 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 visible in our financial results, including higher Return on Sales 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 and 2014 form a sound basis for improved performance, and we are on track to deliver our targets for 2015.
This concludes our formal presentation. We'd be happy to take your question now. Please limit your number of question to a maximum of two so others can participate.
Operator? We will now begin the question and answer session. To ask a question, please press star one. To withdraw your request, please press star two. We have an audio question which comes from the line of Tony Jones. Please go ahead. Your line is now opened.
Good morning, everybody. Tony Jones, Redburn. Two questions. Firstly, on margin, in the gross profit expansion, I think that was about EUR 140 million, can you indicate what the gains were from reduced fixed costs and also transaction impact? Secondly, on cash flow, with the free cash flow a bit lower and this FX impact likely to linger for another quarter or two, can you just confirm whether AkzoNobel's 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. On your first question on the improvement of margin, the quarters, 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 EUR 44 million last year down to EUR 11 million. This is a EUR 33 million impact, and we also have the benefit from all the plan we have done that is really delivering. Those are the main items that are explaining the improvement. 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 terms of cash flow because we are combining lower quarter in terms of activity, in particular for Deco. We also have the seasonality effect of the working capital with the building up for the season in Deco. On top of that, we are paying the full amount of our pension TOP-UP, both for ICI and Courtaulds, as I mentioned, EUR 330 million. All that combined explain why there is a large cash outflow. For the rest of the year, we are still aiming at being cash positive. We are 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 Redenius. Please, sir, go ahead. Your line is now opened.
Hi, it's Jeremy Redenius from Bernstein. Thanks for taking the questions. The first question's about pricing. I'm wondering if you can help us split out really the underlying price improvements in the quarter versus pricing that was really solely achieved just to try to offset depreciating currencies in emerging markets. Secondly, on restructuring charges, I see that they've come in relatively low for the quarter, but you're still guiding for roughly EUR 150 million 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 in 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 question. The first one on the pricing effect. In Decorative Paints, as we mentioned, we have a minus 1%, but as I mentioned, a big part is linked to the sell of our German stores in Q1 last year. This effect will stop in the future quarter. As you know, that's where we put this impact. 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 had the same on other country with particular in Russia, where the currency devaluate. Overall, Decorative Paint managed to kind of hold on overall the price. On Performance Coatings, we see a plus 1% on price mix, which I think is quite a good achievement in the current environment and the pressure on price.
This is quite positive. In Specialty Chemicals, basically, we were more flat. We're starting to see, of course, some pressure overall in chemical on pricing. 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 first quarter was a low quarter, only EUR 11 million. Restructuring is not linear over the years, we're still aiming to be around 1% of the sale. As we indicated, both Decorative Paints and Specialty Chemicals are now moving more to a continuous improvement mode. The large parts of the restructuring this year are dedicated to Performance Coatings. We have announced end of last year the new structure with delayering of the top management, and now through 2015, we are implementing these restructuring through the whole organization and the different geography.
The other part is also that we're continuing the implementation of our shared service, in particular for all our function like HR, IT, finance, and this is also continuing over the years. That's the two area where we will concentrate our restructuring efforts.
Maybe just to ask my first question a little bit differently. 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 market, as I mentioned, particularly Latin America, Russia, or Turkey, we're trying again to compensate part of the devaluation by price increase. Of course, there is a limit to that. When you have 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 opened.
Yes, good morning. Thank you. Two questions again. First of all, I'm going to reask 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 first quarter. I don't know, maybe a couple of percent, maybe 4% or something. Just your outlook for the full year on the China Deco. Tied on that, the outlook for China, I guess, just generally on the coating side. 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. For China, on the Deco volumes, we had a slow start of the season. As I mentioned, it's just the start, so it's difficult to give a full guidance. Yeah, 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 they definitely in slowdown. Therefore, we remain cautious. We'll continue to be very active. We have new product introduction and very good position there. I think it's a market we are looking carefully as being one of our largest market for Deco.
It's a little bit difficult to give a complete view of how it will develop. We will remain cautious there, and we'll see how it will develop in Q2, which is, as you know, the real big season. For Europe, on the volume, we had lower volume. There the mix also we have, as you know, Eastern Europe has been affected by the situation in Russia. In the rest of Europe, it's a mix with different dynamic between the country. Overall, we're seeing that in Europe, 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 U.K. as a public discussion of exit. All that creates a little bit of disturbance. We have not seen yet a recovery in Europe. Again, there it's a small quarter.
We'll have to see how it develop in the rest of the season. We are pretty much active. We are launching, although in the U.K., we have made new campaigns, new product introduction. We're focusing on commercial excellence to boost our volumes. The last question? There was no. Okay.
That's fine. 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. A bit more color on the bridge of EBIT in Q1 2015. EUR 90 million, EUR 33 million coming from less PIP. Can you comment a bit more on the EUR 60 million remaining in terms of FX, raw mats, inflation, and savings? I know you're not going to give the absolute numbers, but the qualitative/quantitative comments would be helpful. That's question number one. Second part of the question, the liabilities on the balance sheets are basically flat versus Q4, despite a pretty large outflow in the cash flow. Is that just FX or there's more to it? Thanks.
Okay. On the bridge of EBIT, as I mentioned, we don't give the exact split. As I mentioned, the efforts of the improvement of our program, if you recall, last year, we had around EUR 200 million of benefit in 2014. We're continuing this year to benefit from the past restructuring and all the program we have implement. This is a major part of the benefit from our restructuring improvement. As I mentioned, the lower restructuring, which is EUR 33 million. For the rest, we have, of course, a little bit of FX on the raw material side. As mentioned, globally for this quarter, it's modest. It's positive but modest. As we mentioned, 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 U.S. dollar.
Overall, this part is smaller. The large part of the increase, as I mentioned, is mostly coming from the restructuring and the lower restructuring expense.
About the same run rate quarterly as last year?
I think we will update you in the full year, as I say, we'll continue the improvement, you can make your own estimate.
Okay.
On the cash, can you repeat exactly the question?
Yeah. The overall liabilities on the balance sheet stands about at EUR 4.7 billion, I think, flat versus Q4, despite EUR 410 outflows. Is there anything that I missed or it's FX driven?
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 on other comprehensive income of the buy-in from the ICI Pension Fund we mentioned. There is nothing unusual. I don't see which number you're comparing, to be honest, it's probably mainly the currency effect, which has been very largely impacting.
Okay.
Thank you.
Thanks.
Next question.
Thank you. The next question comes from Laurent Favre. Please go ahead. Your line is now open.
Yes. Good morning. Question on the Marine and Protective Coatings, 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. The oil and gas CapEx is coming off, but really that should be more of a H2 2015, 2016 topic. 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 Coatings, as we say, globally, we are up. 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. Though we had a lower volume. In the marine, we also see volume declines. This is mixed, of course, depending on the different region. No, we already start to feel the market movement.
I'm looking at the margin in the whole coatings division, which has been, in Q1 last year was fairly low. 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 Coatings was higher margin historically and has been under more pressure? 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 improvement, you have a visible improvement of the Return on Sales and the Return on Investment. Performance Coatings in 2014, as you know, has implemented a new business structure, delivering its organization and also focusing a lot of margin management. Focusing on the most profitable segment, we're seeing, and we continue to see, a price mix positive. They also benefit from lower costs because they really work a lot on it. We have done a lot of consolidation of sites. Last year, we closed or stopped some site to consolidate on other site to around nine sites. This year they have also six new sites which are under closure, and that's also why we have explained that our working capital was up in Performance Coatings, because when you do those type of site movement, you need to plan that.
You need to build up some inventories. That's the result of it. 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.
Next question comes from the line of Mutlu Gundogan. Please go ahead. Your line is now opened.
Yes, good morning. I have two bit nitty-gritty questions. The first is on the other line. The OPI here has been volatile in the last few quarters. I was wondering if you can give us some guidance for the full year or what you believe is a recurring number per quarter. 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. There's a positive contribution historically. Just wondering what is driving that and when and if that will recover. Thank you.
On the line, which is the associates you mentioned, we had done some portfolio adjustment on our joint venture, That's why we had positive last year, which was divestment of small joint venture and this gain. This quarter, on the contrary, we have some negative effect, but this is not supposed to continue. It's rather one-off effect. We will come back to a more, I would say, normal contribution. It's really just adjustment. On the other, I guess you're talking about what the operating income in other activity, is that what your question?
Exactly, yeah.
The main difference, as you can see, is coming from insurance. In this line, we have some always payment and outflow from our insurance. This is mainly due to a negative effect in 2015, where we have, we mentioned that in the Specialty Chemicals, we had some disruption in our supply chain in Rotterdam, and part of that is self-insured with our captive insurance. Therefore, we have a positive effect in the chemical. Here you see the negative internal effect. Globally is due to, and that's the main reason to this impact on the activity of Rotterdam and the insurance. On the rest of the cost, the corporate costs are slightly up.
This is mainly due, well, they have of course effect, 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. If we look overall of our different functional costs, 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 Pandya. Please go ahead. Your line is now opened.
Yes, thanks. A couple of questions. First of all, if I just look at your quarterly development, basically, it's sort of around EUR 40 million restructuring benefit, and then EUR 33 million, which you've obviously stated, because you're sort of stating that the majority of the year-over-year improvement is via restructuring benefits and lower restructuring costs. If I look at last year, you had sort of a net EUR 100 million benefit. Are you sort of saying that this year we should expect a benefit more than EUR 100 million? Is that your message, or have you had increase in inventory? I.e., the -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%.
Last year you were around 10% and sort of we've been between the 10%-11% range. 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. I just mentioned, and I will come back to what I said previously, the main part is coming from our improvement effect of our program to reduce restructuring. There is, of course, all the other variables playing with 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. 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, you have to bear in mind it's an average moving, therefore it takes the first quarter and then the results of the past last quarter.
If you recall, Q4 2014 was low because we had some exceptional items. The more we are moving the year, the effect of the past year will disappear. If we look at the full ROI, it will have to reach during the year, and that will mainly be done, as we mentioned, by the improvement we're expecting. As I already mentioned, as you know, the ForEx does not play a role into the return itself because you have both the top and the bottom of the equation that is impacted. It's mainly due to our improvement, the improvement program we have launched this year and the lower 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 worse, which has helped you on the gross margin because gross margin is 160 basis points. Would you say that there's no abnormal inventory buildup here in the Q1 bridge year-over-year? Volume as a contribution was negative because your 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're mentioning it's mainly in Performance Coatings that we have this effect. In Deco, we are building inventory, 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. There we have, of course, the inventory effect of the past inventory with higher costs. That's where we see an inventory impact on the OPI bridge. This has nothing to do with extraordinary buildup of inventory. As I said, 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 Wrigglesworth. 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 language], obviously then related? Is sort of EUR 10 million, EUR 12 million the right number to look at? The second question is, can you just talk around the U.K. market, paints market specifically, how you see 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 in the mass market with the retailers went for 2015? Just a bit of color on the U.K. paints market, please. Thank you.
Okay. No, 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 U.K. campaign, as I mentioned, I think you can see it on the web. We have launched the new campaign for our main products, which is Dulux. At this stage, we do not provide precise information about our negotiation with our main customer in the U.K. The only thing we can say is that U.K. remains 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.
I cannot give you too many comments and give you detail on any of the negotiation.
Can I still try? On the new campaign, I'm an ICI analyst back 10 years. It was different then. 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 are still in negotiation for shelf space and pricing for Dulux for 2015? Did I understand that correctly?
Well, you're a specialist analyst. Maybe you know more than myself about the detail, but as I said, 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, your line is now open.
Yeah. Thanks very much. Morning, Maëlys. Morning, Lloyd. Two questions from my side. Can you just talk around raw materials, Maëlys, particularly within the context of your pricing expectations for the year? Do you think you can keep pricing stable as you saw in the first quarter, and what's your current raw material basket showing you for 2015? Secondly, just anecdotally, PPG made some comments around expecting a slightly better Europe going forward. 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. First question on raw material. As we mentioned, raw material were lower in this first quarter, mainly the one related to oil, the impact is not yet, and we show you that in the last quarter. There is a delay effect, therefore for this quarter, it's still limited. Going forward, we might see a little bit more of benefit if the oil price remains low. You've seen also that the oil price, even if still low, has quite increased in the past months compared to the very low level of January. There's also some volatility there. Definitely, we see this delay effect, as we mentioned, Q1 impact is