Akzo Nobel N.V. (AMS:AKZA)

CMD 2015

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Oct 27, 2015

Ladies and gentlemen, a very warm welcome to the Capital Markets Day of AkzoNobel 2015. My name is Ton Büchner, CEO of AkzoNobel. I thank you very much for joining us to hear more about the company's progress and the next steps going forward, either in this room or during the webcast if you're participating through that medium. Let me start by saying how much I love this particular video because it clearly shows how essential the role is that many of our products play when it comes to affecting people's lives around the world. You've seen an impact of the UN City's Let's Colour projects, both in Brazil and in India in this video. In the area of salt, where we actually continue to innovate, you've seen Norwegian roads that are being made more safe. We're reducing the maintenance cost of these roads with the new innovations that we have in that product. Of course, you've seen the famous International coatings that go on ships and on yachts, as you saw over here, that makes them faster and more efficient in the way they operate. It is great to be here today with the full team, the full Executive Committee team that will present to you today. These are the team members that are responsible for many of the products. These are a few examples of many more of those products that we sell as AkzoNobel. Of course, they're responsible for the passionate people that have made AkzoNobel a better performing place. Let's get to the business. As mentioned, the entire Executive Committee is here today, and they are available for questions during the breaks and, for the most part, also at the end of the presentations. The only one that does not have a presentation today is Sven Dumoulin, our General Counsel. Sven, maybe you can quickly stand up. Also available, of course, for questions during the break. At AkzoNobel, we've been on a journey, a change journey over the last three and a half years. Today, we want to provide you an update on where we stand on that journey, not only an update, but also clear and tangible proof points that you can almost touch to show that we are actually moving towards a leading performance. We also intend to give you a clear view of what the next steps are as part of this strategy. I'll first provide a strategic update. It'll be followed by the business areas, Werner for Specialty Chemicals, Conrad for Performance Coatings, and Ruud for Decorative Paints that will update on the actions that are going on in those areas. Martin will provide a summary when it comes to people, cultural change, and leadership. We talk about cultural change, but also Martin will show you clear proof points what is actually taking place in the company. That'll be followed by Maëlys, who will of course update you on the financial cornerstones of the company, the improvements that we've made, issues related to cash flow, also if there's questions on the pension-related issues. In addition to the Executive Committee members, we also have an additional member that has joined us, is joining us today, David Allen, responsible for the integrated supply chain and research and development. He will focus on the supply chain part. In the move towards continuous improvements, he will show you examples on what we're doing to build that culture and where we're already seeing an impact. In addition to the team members and David Allen, we also have a special guest today, Byron Grote, who is one of our Supervisory Board members. Byron, maybe you can quickly stand up. He's also the chair of our Audit Committee, he's joining us today, and a very warm welcome, Byron, to be here today at the Capital Market Day. I'll begin with the executive summary and explain to you more about the strategic developments that we have so far. Then we'll go to the economic outlook, after which we'll explain the next phase of the strategy. Before I do so, first, a reminder of what we are. Akzo Nobel is a global paints, coatings, and Specialty Chemicals company with a balanced portfolio of businesses. In 2014, we had a revenue of EUR 14.3 billion, at the end of the third quarter, we had around 46,000 employees and about 200 production sites worldwide. We have strong global brands in both the consumer and the industrial businesses, this balanced portfolio is not only from a business perspective, but also from a geographical perspective, which provides us kind of a natural hedge against business and geographical volatility. We're present in large and attractive markets. The global paints and coatings market is around EUR 100 billion, as you see on the chart on the left. About 42% of that market consists of decorative or sometimes called architectural paints, whereas the remaining 58% is what we call Performance Coatings. The chemicals industry, at EUR 3.5 trillion, is a lot larger. This is a definition even excluding the pharmaceutical industry that sometimes is combined in the big numbers. Some even argue that the paints and coatings industry is part of this EUR 3.5 trillion in the chemical industry overall. The actual success factor in the chemical industry is, of course, that you choose the areas where you want to be in, you make sure that you have leading positions, and you can, in that way, create customer and shareholder value. Both of these markets have, over the cycle, generally grown in line and some segments even in excess of GDP. In early 2013, we announced a strategy that was clearly geared around operational excellence, organic growth, and sustainability in everything we do. This strategy set some clear strategic focus areas. It also defined which processes we wanted to standardize and how much we wanted them supported by standard tools, it also defined a set of company-wide actions that we wanted to pursue. We introduced the concept of end-user segments, not from the perspective of an organizational aspect, but very much to ensure that we follow customer-centric indicators, leading indicators in the individual segments, just to be able to connect more closely to those customers and to ensure that our innovation spend and direction and our sales efforts were aligned with what is happening in those specific segments. This particular strategy has clearly had an impact. It is already showing very distinct results in the last three and a half years that we've been working very hard as a team together with our 45,000 people to make it happen. Here are a few things that have taken place in the last years. You'll hear more about it in the presentations that my colleagues will give for each of the business areas specifically. We haven't only changed the business areas in a significant way, we've also changed the operating model when it comes to the functions, I'll explain a little bit more about that later in the presentation. We have done a significant reduction when it comes to our factory footprint, to the number of ERP systems, to the number of stock keeping units, All of that driven by the desire to reduce the complexity of the organization and to be able to serve our customers faster, more agile, and with a clearer definition of products and processes. We've optimized our portfolio, focusing clearly on those leading market positions where we are truly leading. We had to make a few tough decisions on some of the portfolio aspects of the company, We did go through this divestment, the last one being the paper industry segment that we have divested most recently during the course of 2015. We've also proactively managed our pension fund liabilities. These pension liabilities are not gone. They are still there. They still constitute a significant headwind to the company in the medium term, They've also been significantly de-risked, Therefore, they are far more predictable than they were in the past. Our continued focus on sustainability has also been very strong and has made us, for the first time, four times in a row, the number one in the Dow Jones Sustainability Index in the materials sector that we're operating in. We're clearly a different company than we were three and a half years ago, The presentations this afternoon will demonstrate to you what it is that has all changed. Each of the team will tell you more about these significant achievements in their presentations. These are actions. Of course, all of these actions have also been visible in the financial results of the company. The return on sales has continuously improved, You've also seen here the half-year numbers, Of course, we've issued the third quarter numbers, which have shown an additional improvement last week. Return on investment has also continuously improved, and here as well, you see the first half results. Q3, of course, was part of last week's presentation. During last week, we've also shown that we've increased our interim dividend, which is a positive proof point and of our confidence when it comes to our future cash flow. These targets were coherent when we actually announced them, They've, of course, diverged over time because of various market developments that have taken place, either in our segments or in our geographies that were very different from the assumptions that we made at that point in time. As a result, you see that the return on investment part has diverged from the return on sales side in its development going forward. Therefore, you see a clear challenge in making the return on investment target for 2015. Our net debt has been around one times EBITDA for the last two years. Please know that it is incredibly important and relevant for us to not only look at net debt over EBITDA. We also need to look at the net debt over our free cash flow, which is quite strongly impacted by the top-ups that we pay related to our pension funds. We know that we're not done. It is not the end of 2015 yet, and we're certainly not claiming victory or getting there. I'm delighted to say that we're clearly on track to deliver the 2015 targets, a topic I know many of you are extremely keeping a keen eye on. Our priorities for the remaining part of 2015 are clearly to continue the transformations that we're doing and to make sure that we keep our eyes on delivering the 2015 targets. We do recognize there is still some way to go to get to the vision of leading market positions, delivering leading performance. That is not just the financial results. That is defined internally for us also in the areas of customer satisfaction, innovation, supply chain excellence, employee engagement, and of course, sustainability. We are leading in many of our segments and our activities that we have. We're just not leading everywhere yet, and we'll continue to push those areas that don't to continue to deliver that leading performance. Our strategy was always intended to be longer than 2015. During the first years, we've undergone significant transformations in all of the business areas and the functions. The next phase of this strategy is going to be much more driven by continuous improvement and organic growth. That brings me to a very important slide of this presentation, because this slide summarizes many of the parts that you actually hear during the course of today. We will maintain our existing vision of leading market positions, delivering leading performance. We maintain our strategic focus areas and the focus and drive for standardization of processes and tools that we operate with. We're therefore very clearly aware, though, that we are in a different position than we were three and a half years ago. As you've seen during the results of the Q3, we are now clearly in financially value-creating territory. This is an achievement for us because we haven't been in that area for a long time before. Therefore, in the future, we're defining our operating ranges as financial guidance for the 2016 and 2018 period. Return on sales between 9% and 11%, and return on investment between 13% and 16.5%. These are ranges that, of course, with our continuous improvement drive, we aim to be at the top of these brackets by the time we are at the end of this defined period. We've built a foundation at AkzoNobel that has been very different from what we had a number of years ago, and we want to build on this foundation to not only continue to improve further, but also grow in line and faster than our relevant market segments. The world is experiencing a period of quite distinct volatility at the moment, though. We see incredible macroeconomic fluctuations that we also have to deal with. Combining our assessments that we have today, we believe that our relevant market segments, probably in this particular period, will grow around 2%-3% in terms of the compound aggregate growth rate over this three-year period. Performance ranges will also be elaborated on for each of the individual business areas as an underlying explanation of how we got to this financial guidance at the company level, and you'll hear so in each of the individual business areas. Also to note is a small thing, but important. After discussions with you and your colleagues, we normally had our rather swingy incidentals in our operating income and defined the return on sales, including those incidentals. Based upon your request to have a cleaner feel of what the operating return on sales is, we've actually taken those incidentals out, and these return on sales and return on investment brackets are therefore defined as EBIT over sales and EBIT over the average invested capital. Let me step in a bit more detail into the strategic developments so far. While adapting many things at Akzo Nobel, what was important, of course, was to adapt our culture, to change our culture to something that is more performance-driven than what we perceived it to be before. We introduced a new set of values. We confirmed our principles that made them core principles of the organization, and Martin Beisheim will elaborate much more on it in his presentation, what we've done and how we can actually see that this particular cultural change is taking place. We talked about transformation in all of the business areas. Here you see three business areas, each of them will spend a lot of time in telling you what the transformations have been, let me give you a very quick overview. Decorative Paints clearly changed our operating model in Europe, really leveraging on the scale that we have as the leader in the European Decorative Paints markets. Performance Coatings clearly optimized their factory footprint and, in addition, took several layers out of the organization to become more agile and have a far higher level of accountability in the organization overall. Specialty Chemicals is focused on delayering the organization to manage the business in line with the five key chemical platforms that we lead in and that we decided to focus on. These actions have also been visible in the financial results. Besides the company targets that we defined in 2013 of 9% return on sales and 14% return on investment in the early part, we also communicated the way these targets were built up. We have always clearly stated that these were not targets by themselves and that smaller deviations in one or the other area were certainly okay as long as the company overall delivered on its 9% and 14% targets defined. What you can see on this slide is that all business areas are improving and that all business areas are contributing to the improvements of the company overall. These improvements in the financial metrics also show that the operating model changes are working despite the fact that we have such difficult market conditions out there. Our changes have not been restricted to the business areas. We've also been changing the functions quite significantly. In 2012, the functions at AkzoNobel were extremely decentralized. Every single management team and every single entity in the world had its own full-fledged management team with its own HR, finance, IT, procurement, and other activities. We fundamentally changed it in a number of steps, first by aligning the reporting line and the functions and asking the functions to standardize processes, standardize tools, and optimize their cost structures far more across boundaries as opposed to within individual units. On top of that, these functions have been building what we call this three-pronged shared services center of expertise and business partner segment, all to prepare themselves for a move in what we call a Global Business Services structure. You see by the progress of the functions that many are close to being ready for the transfer into this structure during the early course of 2016. It's important to note that we've consciously staged these different transformations, which have all been very significant for the organization. It's been an important success factor in the operating model modifications that we've made. It's been a lot for the AkzoNobel employees, but they've clearly put their shoulders underneath it and made this change work, as you've also seen in the results. These changes have actually already had an impact on the numbers of AkzoNobel. Here you see that our operating expenses over our gross profits have reduced with 2% only comparing 2012 with 2015, not even including the improvements that we've made in 2015 year to date. Ongoing initiatives, especially in the area of the move to Global Business Services and commercial excellence and efficiency, will continue going forward. Therefore, they'll be a clear contributor to the further improvements that we at AkzoNobel intend to make. Sustainability has always been part of the heart of what AkzoNobel does. Here you see the three clear targets that we've communicated to the outside world and how we've progressed. Many companies claim that 90% of their new products introduced are actually more sustainable than the products they replaced or that they previously made. Of course, that is the case at AkzoNobel as well. For ourselves, we use a much tougher measure, a measure that compares the percentage of our products that provide a clear, sustainable benefit to our customers, which is higher than the equivalent products of our competition. Our measure is driven by competitive customer benefits, not by the composition of our products, nor by the comparison of what we used to sell before. That was 19% in 2014, adding up to EUR 2.7 billion of our revenue, also gives you an indication of our innovation strength of the organization. We're also committed to reducing our CO2 footprint, the CO2 footprint across the entire value chain. We ourselves only control about 15% of that footprint. Therefore, we need to truly mobilize our suppliers and our customers if we want to make a significant difference across the chain. Within our own fences, we've reduced our carbon footprint with 25% since 2010. Of course, we're now focusing on the partnerships with customers and suppliers that allow us to make an even bigger impact across the entire chain. Our safety performance has significantly improved over the last three years, and that really deserves a thank you for the employees. AkzoNobel has become a clearly safer place to work. Finally, I'm pleased to say that we've been, for the fourth time in a row, the number one in the Dow Jones Sustainability Index in our own materials sector, which is one of the largest and some of the better performer sectors in the overall index. Let me give you a few examples of what we've been doing. We've recently signed a multi-year agreement to purchase sustainably generated steam from a Dutch energy provider, and this will save us 100,000 tons of CO2 for the organization overall. This will be noticeable for AkzoNobel as a whole. It will probably be noticeable for the country that this is actually taking place in. We also developed a carbon credits program for shipping, where besides the energy savings that ship owners will get from the special coatings that they can apply, they actually have an independent body that they can go to, who will support them in that process, and they will then, on top of the energy savings, provide them with carbon credits that they can actually sell in the industry. We also have been rolling out the Dulux Weathershield Powerflex, which is a great exterior paint that's providing superior rain protection, resulting in much cleaner and longer lasting walls. But it also saves energy by being highly reflective, and therefore, it can reduce the temperature in those areas that require air conditioning with almost 5%, and that can actually save up to 10% of the energy used in those areas. Last but not least, the four-dimensional profit and loss that we have put an example in our annual report in 2014 is the way that we're pushing the boundaries of establishing what the overall impact is that we have with our business on the environment, on the employees, and society at large. Looking at society as large, we've also introduced our Human Cities Initiative. This is an initiative that truly encompasses all of the activities that we do with and for society at AkzoNobel. We know our cities are growing. We know that 70% of our population of the world is expected to live in cities in 2050, and we ourselves know that 60% of our revenue ends up in cities. Therefore, we have a role to play, and we've bundled our corporate social responsibility under the banner of the Human Cities Initiative. Let me step to the economic outlook. In general, the external environment has become more volatile. If you would have put us on the spot and say, "How do you feel today compared to four months ago?" It's actually becoming more difficult to predict, and it's actually becoming tougher in many of our industrial segments. Global economic growth has slowed. What used to be high growth markets are much lower growth or even in some ways contracting markets, and the mature markets have not picked up the slack and started to grow to compensate for the other areas. We look at it from the perspective of our own four key customer end-user segments. We follow leading indicators, not just on these four high top levels, but very much also of the 10 underlying individual levels that you see here, the sub-segments that we indicate. The buildings and infrastructure segment is a segment that has a very large set of geographical differences. It grew fast in China, Brazil, India, and even Russia over the last many years, but that has truly turned. The mature markets have been in quite a tough situation, and we've seen some initial recoveries, partly in Western Europe, but Europe overall has clearly not been improving in the way we've tracked all of the leading indicators that we see in this segment. On the transportation side, you have seen growth in the automotive OEM segment driven by the U.S. and China, but this is a segment where Akzo Nobel does not have a very significant presence. We see, though, also that the Chinese growth is clearly slowing down in the recent months. The automotive repair segment has been far more steady, has been far more driven by the repair cycle of different cars, and therefore has been quite a steady business for us at Akzo Nobel as well. The marine business has been a business that's shown quite some growth in the recent months and quarters. What we also see in parallel is that the backlogs of the shipyards is actually decreasing, and therefore, we don't believe that this growth is going to continue to take place going forward. On the consumer goods side, this is a far more steady segment as well. It doesn't really get susceptive to the cycles on the way down, but it certainly also does not show the growth levels of some of the other segments when there is an upswing. That is very different in the industrial segment. We see good developments there when it comes to our chemicals that serve the pulp business in Latin America and other areas in the world. We also here clearly feel the pain of the oil and gas segment that is also in this industrial block over here. The oil price being low has clearly resulted in capital expenditure cuts and a clearer look at maintenance and much less drilling activities, which is actually affecting us in Performance Coatings and Specialty Chemicals. We generally track two indicators at a very high level. One is the purchasing manager index, which is actually an indicator for our industrial businesses in Specialty Chemicals and in Performance Coatings. On the other side, we also track what we call the consumer confidence index, which has more of an indicator aspect when it look at the development of these. These are the second quarter numbers because the third quarter numbers are not available yet. You see the European countries actually rising, whereas Brazil, Russia, Poland, and China, you see the red arrows indicating a contraction of consumer confidence going forward. A lot of people speak about GDP when they track many markets. What we do with GDP is we actually try to dissect it to make sure that we separate the industrial GDP, which is far more applicable to us, from the services GDP, where we don't have a direct relation as an indicator for us. In the euro area, you see clearly that the industrial GDP growth levels are clearly below the overall growth levels. Only the U.S. has been an exception in the last couple of years and is expected to continue to be an exception when it comes to the industrial GDP being above the overall GDP growth levels. Very different, though, is what you see in China and in Brazil. In China, already in the past years, the industrial GDP growth levels have been clearly below the overall and certainly below the service growth levels, and it continues to be an expectation for the future. In Brazil, you even see a clear contraction there, and this is more what we track. We track more the industrial GDP as opposed to the general GDP because these differences are actually very relevant for the businesses that we operate in. The markets have not gone easier on us. They're still quite different and difficult and quite volatile. We've incorporated that in the next strategy that we've actually laid out in terms of the next phase of the strategy that we've had. Our strategy, including our vision of leading market positions, delivering leading performance, is achieving results and will continue to be the basis of what we do going forward. We had significant historical issues in 2012, of which we've addressed many during the course of the last three and a half years. The vision and the strategy were always intended to be longer than just a three-year period. We know we're not done with our vision, and therefore, we simply move into the next phase, which will be far more driven by continuous improvement drives and an addition of organic growth on top of that improvement drive. We've always driven the strategy in what we call a bit of a three-step model. First, get your house in order. Make sure that you build your operational excellence DNA. When you're firmly on the way by doing so, then add a component of organic growth to it on top of operational excellence, not instead. If you've got these two blocks, clearly in terms of progress measures in place, you've earned your right to possibly even acquire. Although life is not this sequential, it is certainly very helpful for the businesses to drive their way forward. Our businesses are in different stages of development in this three-step model, and some may be much further advanced than others and are also managed in a very differentiated way. That brings me to the real next steps, what it is that our energy, our management attention, and also our investment drive will be focused at. We're committed to delivering our vision, but we do need to hardwire the changes that we've done. We've got significant changes done, both in the business areas and in the functions, and we have to make sure that we don't fall back to previous behaviors, and we certainly don't fall back to previous performances. We will continue to build operational performance, which we will do with what we call our AkzoNobel Leading Performance System. David Allen, when he elaborates on the supply chain, will tell you a lot more about that. It is far more driven by a drive towards continuous improvements. Not any more of these very large restructuring charges that are associated with transformations, but much more a continuous improvement that goes on during the entire period, during many areas into the organization. On top of this drive for continuous improvement and further operational excellence, which has been shown in the performance ranges that we showed, we want to add a component of organic growth and clear innovation. Each of the three business area managers will very clearly indicate what they're doing in these particular areas. We will build further on these two aspects, and when we see fit, we now, with our increased cash generation, with our higher levels of performance, with our de-risked situation when it comes to our pension funds, we now have earned the right to at least consider certain value-generating bolt-on acquisitions, although we'll be very disciplined in doing so. This whole picture concludes us back to that very important slide, where we say we will be operating this guidance-wise in these particular ranges with a clear aim to grow in line and faster than our relevant markets. When we look forward in these markets, we do see that we think these markets on a CAGR basis will actually be at a 2%-3% growth level over this particular timeframe. We clearly see on the basis of the market indicators today that 2016 may actually give quite a significant challenge. Therefore, we don't expect this particular growth rate to be a straight line. We do see concerns for '16, over the period combined, we do believe that our relevant market segments will be growing with 2%-3%. All in all, what I'm really trying to tell you is AkzoNobel is a very strong case for investment. A great portfolio of businesses, leadership positions in many markets, fantastic global brands in both our consumer and our industrial markets. Long-term growth potential, cyclical markets, some really having a bit of a tough patch at this point in time. If you look at the long-term developments of these markets, they are truly attractive from their growth perspective. We've got a balanced exposure across regions, creating a bit of a natural hedge for us, we've got a clear track record in improving our returns and our cash flows. We have a history of successfully commercializing innovations, the business area managers will show you clear examples of it, we're a clear leader in sustainability with a true commitment to our corporate social responsibility as well. Therefore, a strong case for investment, something that is a company that's clearly shown progress, we hope this afternoon we can very much show you in each of the individual aspects of this business. With that, I would like to introduce Werner Fuhrmann. Since I've been with the company, I have visited and spoken and met a tremendous amount of customers and suppliers. The person I have not met yet is the person that doesn't know Werner Fuhrmann. He is so known in this industry that he's used his incredible network and the experience that he's collected over these many years to make the Specialty Chemicals business perform significantly better, and he'll elaborate on this in his next presentation. Werner? Ton, thank you very much for the kind remarks. Chemicals are essential ingredients in our daily life. Chemicals are critical for food supply. Think about fertilizers, think about crop protection. Chemicals are indispensable here for car manufacturing. There are thousands of EUR of chemicals in each and every car sold. Chemicals play a very broad role when it comes to building and construction, particularly here when it comes to sustainable construction and building. There's very little you can do without chemicals. If you look around in this room, tell me something what you could make without using chemicals. Chemicals are everywhere. They are at the front line of the value chain of the entire manufacturing sector. Sometimes we say chemicals is the industry of the industry. The purpose of my presentation is talking about value. I would like to show you how we could create values for our customers, how we create value here for our shareholders and other stakeholders. Productivity and growth are the key drivers in this respect. In fact, they go hand in hand. Productivity improvements lead also to lower cost, lower cost help us here to build and to increase our market share. My story is about delivering leading performance in line with our company vision and our strategy. Just the chemicals at a glance. Who we are, very rough numbers, about 10,000 people now deliver a turnover of about EUR 5 billion in 2014. The return on sales of about 10% and the return on investment of around 15%, which compares pretty well also with our peers. The largest segment is the Industrial segment covering sub-segments such as agro, cleaning, pulp and paper, plastics, mining and drilling, and also electronics. Chemicals is a global business. One third is generated here in Asia, in Latin America, and emerging Europe. Two thirds is generated here in what we used to call the Western world, mature Europe and North America. Please remember, two thirds here in the Western world. That is important when I come to expected growth rates later in the presentation. We've made progress currently we are on track to deliver on the expected 2015 outcome. The dotted lines show you what we said the expected outcome would be in 2015. On the return on sales, we achieved the 30.7%, slightly exceeding here the expected outcome in the first half. I can tell you have seen the publications last week, that in the third quarter we delivered similar ratios. Year to date we are at similar ratios as you can derive here from this slide. How did we achieve it? We focused our portfolio and we also made some disposals. Ton mentioned the divestment of paper chemicals, which we did earlier this year. We did significant restructuring, particularly in 2013, and I can tell you one thing. Here in the past you saw more of these restructuring charges, if you compare our business with a car, you see much more continuous improvement under the hood. It is not that we don't have restructuring, we simply do more continuous improvement, and I will come back on this and so will be with David. That is an important value driver for our business. Which helped as well is the investments which we can harvest from. We invested here in, particularly here in Bleching, here in Brazil. We invested in all five of the value chains, we are basically reaping the benefits from it. Just some proof points. Start with the middle one, ERP, so enterprise resource systems. That is we came from eight and was a few years ago, we consolidated everyone in one SAP system. I can tell you this led to improvement of our productivity in information management of a double digit amount of millions. Corresponding here with a double digit amount of percentage-wise. We reduced also the number of manufacturing plants. In fact, we added a few. There is for instance, here in China and also in Brazil, we closed quite a few, the remainder was basically as a consequence also of some divestments. If you look at the number of employees coming down by about 1,500 in a three years period. Half of whom were based on voluntary leave, we did people we did not replace. We covered here with the continuous improvement programs we had. The remaining half, about half of whom we severed, the other half was a consequence of divestment such as paper chemicals. We did not only deliver here on financials and financial ratios, we also delivered on our Planet Possible agenda. A good example is the renewable energy usage. The 31% we achieved in 2012 is already high. We further improved it to 37%. You all know that the discussions are going on, particularly in Europe, what the share should be on renewable energy. The target of European Union is 20% for 2020. Other regions have mostly lower targets. There are not many companies who have such a high share in renewable energies nor are so many countries in this respect. What is also important to mention that is your operations which are integrated with our customers. Basically pipeline supply. We are right in the heart of our customers' plans, we increased the number here from 17 to 19. Not to forget, last but not least, is the safety record. We also improved the safety record here over the years. What you look here is people safety per million work hours. We are even equally proud of is now that we improved our records when it comes to process safety. The chemical industry, a lot of hazardous materials are being handled and also product safety. Think about which, think about TSCA here in the equivalent in the U.S. Before I dive into the strategy, into the specific strategy of our business, let me just elaborate a little bit here on the macroeconomic environment. The first observation is, and Ton mentioned this number already, that the chemical industry is huge. This is a EUR 3.5 trillion industry, and one third of which, so more than EUR 1 trillion is accounted here for in China. China came basically from a very low number, hardly visible on the radar screen 20 years ago, and evolved to the largest chemical player here in the world, and it basically has driven the growth in the industry and is now bigger, believe it or not, it's now bigger than the U.S. and Europe together. There's another region which is driving growth. That is U.S. Based on the shale gas revolution, and if you look here at this chart, the index is at 100 here in 2012. Now you Middle East, now to the U.S. due to the shale gas and partly also here to China. It is a EUR 500 billion sector in Europe, and Europe basically generated a trade surplus with all regions. Here with its neighbors here in Europe, including China, a trade surplus with China, a trade surplus here with the U.S. and other regions. What we have, the EUR 500 billion business in Europe now is very competitive. Otherwise, this significant trade surplus, that is not just for one year. We see it for many, many years now. It shows really the competitiveness here of our main base now being Europe. On the right-hand side, you see the development here of the oil price, and what I can say now the unexpected becomes the rule. Who predicted the shale gas revolution? Who predicted plummeting oil prices? Who predicted the currency patterns and the volatility we see? Who predicted the political crises such as the Arab Spring and the huge number of refugees now fleeing their countries? We get many explanations, but mostly in hindsight, we will have to deal, and we have to cope with the situation. As we have seen here from the previous numbers, now we are able to do that. Some guidance in this respect. We do benefit here. We do benefit here from a strong dollar in our chemicals business. When it comes to the oil price effect, it differs platform by platform. In some areas, some are neutral, others are pluses and others are minuses. In summary, the chemical industry is a very large industrial sector, it keeps growing. There are challenges, but also lots of opportunities. We proved that we are able to cope here with an ever-changing business environment based on the resilient portfolio we have. Allow me now to talk about again, more specifically about AkzoNobel, about our position now and our strategies. This shows now the area of my responsibility. Ton mentioned now that our business is organized in five chemical platforms, two of which are value chains or product chains, product trees, and that is the salt and chlorine chain. That is one of which now we start with energy and salt, transform it into caustic and chlorine, and then we go downstream into many other products. Another chain is the ethylene oxide network. The main backbone is in Europe and also in China. We start here. We convert ethylene into ethylene oxide, go to ethylenamines, and go to downstream products such as now surfactants and chelates. The other three platforms basically offer a certain functionality. Bleaching obviously does bleach. It is for pulp bleaching, we have very significant positions here all over the world, and particularly here in the fastest-growing area, which now is Brazil. Here the polymer chemistry basically catalysts in order to transform monomers into polymers. These are initiators used for the manufacturing of plastics now such as PVC and now polyethylene and many other products. The last one, now surfactants, which offers functionality here for oilfield, for instance, a better extraction, now for agro, better yields. Now lubricants in cars in order to make the engine run more smoothly. Both the ethylene oxide network and surfactants, now they have some similar technologies. They are linked now through the ethylene oxide chain, which both have surface-active properties. We also organize from an organization design point of view. We organize our business here in these five platforms. That is how the management lines go, and we do that since 1st of January 2014. We have located here our five platforms headquartered here in three regions. We moved one of the units, the second one, the polymer chemistry here from Europe to the U.S. Surface chemistry is already located there. We moved another unit, the ethylene oxide network, here to Shanghai. You saw here this incredible dynamics here in the Chinese market. There are two units left here in Europe, one in Sweden, the power bleaching, the former Nobel heritage. Another one that was a regional scope here in Amersfoort, in Holland. You will ask now, how do you grow your business? We apply differentiated strategies. Last year at the CMD, now I was elaborating here in more detail about the specific and differentiated strategies that we apply now here per chemical platforms or even per product category. We have about half of our business. There we have the ambition of outgrowing as a market based on the exceptional strength we have. We are ready to invest in technology and product innovation and if needed, also in new manufacturing plants. When it comes to the second category, there's the second class of businesses, like improve performance by driving operational excellence. We do have leading position. You will see it in one of the next slides also here in this area. We also have strong competitors in such areas. Where it is more important here to balance operational excellence now against organic growth opportunities. You may ask, if you look at the right-hand numbers, now where does that growth come from? That doesn't look like an exciting growth business. If you take a somewhat longer perspective, now here I take a little bit more than a decade. Chemicals was able to deliver a growth 2014. Where did it come from? Obviously, it didn't come from volume growth. It did come here from self-help, from our productivity improvement measures. With some tailwind here from currencies but quite some headwind here from a political macro perspective. If you look under the hood, you come back to this comparison. If you compare it with a car, this is the same make, but there are many more horsepowers now under the hood. We created the basis here for further growth. Here, the right-hand charts indicate what we are focusing at more specifically. We strengthened our strategic focus. Cash business is down. Growth business is up. We have a highly focused portfolio. We built a significant asset base outside Europe, particularly in China and in Brazil, and we improved our customer portfolio based on effective key account management. Here's our strategy on the slide. Our business is centering around our vision. They're delivering leading performance, growing sustainable platforms, driving profitable growth. Everything what I said and what I will say is basically centered around this vision. The performance range indications now for the years out, now is on a return on sales basis, 11.5%-13%. That is a notch down from, if you look at the lower floor compared to expected outcome of 2015. The return on investment, so there where we generate a premium also cost of capital is a notch up. This is to create some more room here for growth in case, now that we have the opportunity to go for it, including then investments in technology and other forms of investing here in the future. In which areas are we active? The chemicals industry is a very large one, but we don't compete here in all areas. On the left-hand side, now on the left-hand bar, now you see the chemical platforms again. The green part indicates the size of the relevant market. On the right-hand side, you see the growth indications. You see growth now, it's not overwhelming. Smaller than 1%, for instance, here in salt and chlorine chain. I can tell you that here, that is a business unit which is located And mainly confined here to Europe. The market is shrinking, but our business did not. We basically gained even market share at the expense of others who don't have the competitive strengths like us. We see a similar situation here also in bleaching, where we grow much faster than our competition, particularly here in South America. This is also reflected. We basically have a EUR 5 billion business out of a point of EUR 20 billion, which underlines our leading positions, which you can see at the right-hand chart. That we have leading positions here from a global leadership perspective or from a regional or segment leadership perspective in almost 90% now of our business. Based on that, now we believe that we will be able to grow at the rate of the market or faster. That is what we have shown in the past as well. We do have the right strategy in place to improve performance and drive growth, and we are delivering on our actions. Our strategic focus areas and processes are entirely aligned here with the company's overall focus. I have to touch a little bit here on when it comes to functional excellence and operational excellence, and in chemicals alone, now we have a team of 50 people in the improvement engine who do nothing else than continuous improvement. Help our factories and help commercial excellence now to improve the processes. We learned one thing. Here, the biggest room in the world is the room for improvement. There's still a long way to go, we expect also going forward, significant benefits from that. Now I don't want to talk more about the productivity improvements. I would like to add some color, some flavor, now when it comes here to growth expectations, now where growth may come from. You have seen that our strategy is not based here on massive CapEx, not based here on major M&A. It is based on self-help, and it will be based here on growth initiatives. Now the growth drivers are process and product innovation, it is commercial excellence, and it is leveraging geographical opportunities. I will take you through all three categories here in a minute. Before I talk, and I will start here with innovation. Before I do that, just a few facts. Now what are the resources we have available for that? Now we have 500 highly skilled scientists in this area. That is 5% of our population. It's EUR 100 million spent for us, and we own more than 5,000 patents, and many patent families. Now in certain areas like bio-based chemicals, process technology, and now we run programs across the BAs. Of course, we have numerous corporations here with our customer now to help them here to build their business. On the right-hand side, now you see some indications how we can basically help to support to address societal changes going forward. Now it's time now to dwell a little bit on a few examples. Now this is an adjuvant. Now an adjuvant, now this is a surfactant, and what it does, it sticks onto leaves and basically helps now that active ingredients which the farmer use like fungicide now penetrate here into the plants, now into the leaves. It leads to a situation that farmers need fewer treatments, now less active ingredients are used. Now that is an advantage for the farmer. It is an advantage for our customers. We don't supply directly to the farmer, we supply now to the Monsantos of this world. Now they can base on our technology. Now they can gain a market share. It is a win-win-win for the farmers, for our customers, for us, and last not least, also here now for the environment. Another one, very ordinary salt. Now salt in the past, the word salt is coming from salary from salt. Here if you go 2,000 years back, people were paid in salt. People don't accept it anymore. It is a very valuable and exciting product for us. We are a very significant producer. You know that salt tends to block. You know that from dispensers. Here in the chemical processing, we cannot have that. We need free-flowing properties. This is why in the salt, anticaking agents are added. We invented a new one, which reduces here the electrical resistance here, for instance, here in chlorine plants, leading here to energy savings of 5%. Think, why does this guy bother me here with 5% energy savings? Here is the 5% energy savings based on the quantities of salt we use or we sell to our customers. That is the equivalent of the energy consumption of a medium-sized town of 70,000 people. Yeah. It's a saving loan. That is a benefit, that is clearly a cost benefit, also for our customers, and there is room here to share this benefit. Again, room for a win-win situation here in the entire value chain. Last not least, obviously, that is also good for the environment. Another example is, the last two examples were how do we add value here for our customers. That is more where does the innovation come when it comes to process improvement. We run a large monochloroacetic acid site here in the Shanghai area here in Taixing. Through process improvement, we were able here to double the capacity at very attractive investment economics. These products are widely used. They are used in pharmaceutics and cosmetics and also in food. This allows us to be more competitive in the highly competitive markets, extremely highly competitive markets here like China. Another example is the continuity initiator doses. That is an example from our polymer chemistry platform. You see a window frame. Many window frames are made of PVC, and to make PVC, you use batch processes, and normally you put everything in one pot, and then you wait until the product comes out. We invented basically a catalyst, which is continuously dosed. It's a different molecule than we had before. Which leads to situation that the process can be run safer. The output can be higher by as much as 30%, which has a significant CapEx savings for our customers. It is again, a good example here for value generation here in the chain and helps us here to build market share. I need to speed up a little bit, we'll be very short on this one. That is a biodegradable chelates. You have phosphate you may know is a problem here for the environment. You see it also green in the water. We have developed here a biodegradable chelates. It's biodegradable in use, and it is made from biodegradable materials. Which does a similar job and avoiding here the disadvantage which is phosphate has in these days. Another example from the same product family is Polyquel. That is a micro nutrient that is a fertilizer, and it makes iron available here for plants. If plants don't have iron, the plant cannot grow, and the crop cannot grow. Here in a very heavy and challenging soil conditions where normal fertilizers don't work anymore, this one does. That is another example here to help us to build a business. Ton referred here to commercial excellence in his presentation. Growth doesn't only come here from new product development and process development, it also comes here from improved processes. A few hundred of our customers now account for about half of our total sales. A few hundred add up here to EUR two and a half billion in sales, and the customer loyalty is high. I can assure you that these customers get a lot of attention here from our business people, but thousands of others get less attention. There we have a churn of 5%-15%. We lose too many customers, even so 5%-15% based on industry standard, not so high. We want to gain share of wallet. We want to get better access here to key account. This is a way based on a better penetration here to grow segments such as agrofood and electronics and based on existing and new customers regardless where they are. Our products ship pretty well. Most of the products at least do. We don't always need to build new plant if we want to serve the new geographies. North America, the renaissance of the shale gas and polymer production offers plenty of opportunities for us for polymer chemistry platform and also surfactants. In Latin America, we are very well represented, particularly here with the bleaching products. In India, an emerging market. We sell into the market. There is a big agricultural sector and also big pharma sector already, which we do supply. There's more opportunities for us and also in other regions. That is an additional lever how we will be able here to develop our business going forward. The summary and conclusions. You have seen this slide already. We achieved significant improvements, meeting the expected outcome when it comes to financial ratios. We are clearly in the value creating zone when it comes here to return on investment and going forward. We expect to grow with the market or outgrow the market here in certain areas and deliver the ratios as I indicated here on this slide. All in all, in summary, a global player with a resilient portfolio and leading market positions. We are a significant player in attractive markets with good financial ratios and healthy cash conversion. While generating here a clear premium, a significant premium on the cost of capital. We delivered considerable performance improvement. We delivered and will deliver performance also under tough conditions. We built the improvement machine which will help to deliver the productivity improvements on a year-on-year basis. We also keep to pursuing differentiated strategy. We carefully balance out the operational excellence against outgrowing the market opportunities. We will create an additional value through profitable growth into the faster market rates. Productivity and growth are our biggest levers to create value there for our customers, for our shareholders. We are living our vision. Now we are delivering leading performance. Happy to take any questions. Yes, please. I think I've got the microphone over here. Sorry. Sorry. It's Paul Walsh from. If you Morgan Stanley. Okay, yeah. I wonder if I could have two questions please. Maybe one for Ton first. Just under the definition of the new targets, Ton. Can you just clarify what you meant around EBIT being pre or post special items, i.e., are the new targets comparable with the old ones in terms of return on sales and return on invested capital? Just some clarity on that because I didn't quite understand. Secondly, just on Specialty Chemicals. You sort of touched on it in the presentation, but are there any red flags that you're highlighting by giving guidance that essentially implies some potentially downward trajectory in your returns and margins? Or is it just to give you the flexibility of making acquisitions and investing more where you see the growth? Thank you. Well, I'm not Let me start. Yeah. Let me start first, Werner. Okay. Yes, the targets or the financial guidance that we're giving, the range that we're giving is very comparable with the targets I gave at company level in 2013. What we've done is the following. I mean, in all of the reporting that you've seen in the quarters, we've given you the bottom line return on sales, and we've given you very often also the return on sales when you would take out the incidentals and the restructuring charges. That transparency has been very clear in each of the quarterly reporting. What you've seen there is that when we sold, for example, buildings and adhesives in Decorative Paints, you saw this enormous swing in the return on sales level. It is these swings that have distracted people on the underlying improvement. What we've done over here is we said, let's take these swings out. We'll report them, we'll be transparent about it, we'll be clear about it. To prevent the lines that you see in terms of its operational performance, we've gone to this level. These financial guidances that we give are extremely comparable. They're only taking out the jerkiness that the incidentals had given in the past. It is including the restructuring charges, if there would be any in the future. It is just excluding these incidentals that are associated with certain levels of book gains or book losses. We have a very resilient portfolio, it was not my intention here to raise a red flags. I must say is that we are a little bit cautious on 2016. I talked about now the unpredictable is becoming the rule. What you were indicating, is it here to create some room here, some flexibility for investment? Yes. This is what it is meant for. We have seen that the return on investment actually is a full percentage point higher now than the expected outcome we announced a couple of years ago for 2015. We have full confidence in our portfolio. You're welcome. I think Yes? Thanks. Christian Okay. for a couple of questions. First of all, you talked about a resilient business. Your specialty chemicals business was remarkably resilient in 2008, if I remember correctly. While the world was falling apart, you still had operating margins of close to 10%. That got a bit more volatile in the last few years. What was the difference between 2008 and 2014 and 2015? Second question is, talking about order book visibility. What is your current order book visibility in general for your business? Is it a couple of weeks? Is it six weeks, two months, something like that? What is the current? Order book visibility. Order visibility, yeah. Yeah. Thank you. Okay. Let me respond to your first question, 2008 and 2014, 2015. They were different worlds. 2008, that was the peak. That was just not before the crisis hit. You saw at one of the slides that at Netherlands, U.S., in Europe, less load in Europe, production rates are back here to this level. Actually they are lower. We use this time basically to improve our geo spread. We made significant investments since then here in China and in Brazil in order to get to the areas where we do see growth. We are participating on growth. But the growth in 2008 was a different one than in 2014 and 2015. When it comes to the order portfolio, there's no easy answer to that. Here in the chemical industry, and most of you know that, we have many long-term contracts in place, long-term alliances and so on. The visibility of the order is less than a month. Even if we have a single supplier commitment, let's say pipeline supply, if the product is not used anymore or is not required in these quantities, nothing will be derated. We have also to derate our factories. The order portfolio is less than a month. Thanks. Thank you. Tim Jones, Deutsche Bank. Three quick questions, if I may. Firstly, you have two very clear targets, return on investment, return on sales. Have you shifted the emphasis between the two or are they both equally important? The second question is on CapEx. Can you talk about what your planned CapEx spending chemicals will be over the next three years compared to what you have spent in chemicals over the last three years? Thirdly and finally, have you put through all the operational management changes that you think need to be done to get to where you want to be by 2018? Thank you. Okay. Let me start. Allow me to start with the last one. As far as the management changes is concerned, we had very significant management changes here into leadership of the UMDs and below. We rearranged the entire supply chain actually. Streamlined the shorter lines of commands and what we call executive people, about half of the population change jobs that was in the last 18 months. There's always something going on, but I don't expect changes like this or major changes here in the near future. As far as CapEx is concerned, you will hear from Merel Ees later on, what the relation is. About half of it is chemicals of our CapEx spend, and it is inherently more capital intensive, but we basically give the money back also again. We don't have now such a power weight in front of us as we had a couple of years ago, now when we did have to manage is a geo shift. You will see now that our CapEx came down from a company perspective from something like EUR 850 to a EUR 600 range. Merel Ees will elaborate later on on this as well. Your first question to return on sales, return on investment. No, it's not a shift, but based on also what we expect now on CapEx requirements going forward, it is just a better balance for us. But I must admit, if I had to prioritize, I would prioritize return on investment. Because as long as it is in the value generating cell. But it is not a deliberate shift, it's just here to getting it better in sync. Yeah. Thank you very much, Thomas. Gilbert, UBS. I have got two questions. I asked your CapEx question in a different way. What do you think the costs of staying low on the cost? Obviously, your business are very low on global cost curves because they're very profitable, but is it getting more difficult and more costly to stay low versus competition? Coming back to the CapEx question, are the- Okay. Classical for us shift across the regions. I don't have a number, but the vast majority is local for local, and it may be in the magnitude it is maybe 20% plus is basically cross-regional. Yeah. One more question and then. Yeah. Thanks a lot. One question actually about crop protection. With plant becoming resistance to glyphosate, there is now more and more of talk about Dicamba and 2,4-D, et cetera. The issue was with actually the lack of the proper adjuvant because they're quite toxic. As far as I understand, some of the U.S. companies like Dow are now launching less toxic 2,4-D, and it can be potentially very high volume product. I was wondering whether you will be participating in this market with your adjuvants. Yeah, we are in this value chain, and you mentioned a few companies that we do not agree with the conclusions drawn now without a scientific basis, which was in our opinion also have been slightly accepted from the World Health Organization. Now it is a scare which is going on, but it is not scientifically based, at least not as far as we can see. Nevertheless, that could potentially be an issue. We are in this value chain, but we are also in other value chains. Actually, we would be the ones now who help you also to look into alternative products in case it should be required. Okay. Thank you very much. Now we have to serve the break, and 10, 15 minutes I believe. We will call you back after the break. Thank you very much for your attention. Estimates suggest that by 2050, around 70% of the world's population will live in cities. Coping with the demands that this will create is one of the biggest challenges of our age. At AkzoNobel, around 60% of our business goes into buildings and infrastructure and transportation. We have a big role to play in helping cities to meet the challenge they face. That's why we've introduced our Human Cities Initiative, which was officially launched at the 2014 Venice Architectural Biennale. It's designed to help the world's cities become more inspiring, more livable, and more enjoyable places for people to live and work. We're focusing on six main areas where our products and expertise can make the biggest difference. Bringing color to cities, embracing urban heritage, connecting people and places, encouraging education, promoting healthier lifestyles, inspiring more sustainable living. We've already made great progress with Human Cities, building on work we've done in Bergamo, Italy, at Gardens by the Bay in Singapore, and Melaka in Malaysia, to name just three. As a progressive company, we're also working closely with a number of influential partner organizations and NGOs, and have already made a commitment to the Clinton Global Initiative, which established a partnership with 100 Resilient Cities, pioneered by The Rockefeller Foundation. It's just one of many steps we're taking to help cities across the world become more human. Over the next few decades, the world's population is projected to reach nine billion people. This will lead to more and more of us living in energy and resource-hungry cities. If we're to meet this growing demand, we have to learn to do more with less. AkzoNobel is committed to developing sustainable solutions that promote efficient and sustainable living. That's why we put a strong focus on driving resource efficiency and lowering energy use. How does this benefit cities? Well, a great example is our fast increase in production of HPMOs, which are used in the manufacture of LEDs. LED bulbs help to significantly reduce energy consumption as well as maintenance costs. They also open up exciting new possibilities for smart urban lighting projects, making cities safer, more colorful, and more enjoyable places to live and work. Estimates suggest that by 2050, around 70% of the world's population will live in cities. Coping with the demands that this will create is one of the biggest challenges of our age. At Akzo Nobel, around 60% of our business goes into buildings and infrastructure and transportation. We have a big role to play in helping cities to meet the challenge they face. That's why we've introduced our Human Cities initiative, which was officially launched at the 2014 Venice Architectural Biennale. It's designed to help the world's cities become more inspiring, more livable, and more enjoyable places for people to live and work. We're focusing on six main areas where our products and expertise can make the biggest difference. Bringing color to cities, embracing urban heritage, connecting people and places, encouraging education, promoting healthier lifestyles, inspiring more sustainable living. We've already made great progress with Human Cities, building on work we've done in Bergamo, Italy, at Gardens by the Bay in Singapore, and Melaka in Malaysia, to name just three. As a progressive company, we're also working closely with a number of influential partner organizations and NGOs, and have already made a commitment to the Clinton Global Initiative, which established a partnership with 100 Resilient Cities, pioneered by The Rockefeller Foundation. It's just one of many steps we're taking to help cities across the world become more human. Over the next few decades, the world's population is projected to reach 9 billion people. This will lead to more and more of us living in energy and resource-hungry cities. If we're to meet this growing demand, we have to learn to do more with less. Akzo Nobel is committed to developing sustainable solutions that promote efficient and sustainable living. That's why we put a strong focus on driving resource efficiency and lowering energy use. How does this benefit cities? Well, a great example is our fast increase in production of HPMOs, which are used in the manufacture of LEDs. LED bulbs help to significantly reduce energy consumption as well as maintenance costs. They also open up exciting new possibilities for smart urban lighting projects, making cities safer, more colorful, and more enjoyable places to live and work. Estimates suggest that by 2050, around 70% of the world's population will live in cities. Coping with the demands that this will create is one of the biggest challenges of our age. At Akzo Nobel, around 60% of our business goes into buildings and infrastructure and transportation. We have a big role to play in helping cities to meet the challenge they face. That's why we've introduced our Human Cities initiative, which was officially launched at the 2014 Venice Architectural Biennale. It's designed to help the world's cities become more inspiring, more livable, and more enjoyable places for people to live and work. We're focusing on six main areas where our products and expertise can make the biggest difference. Bringing color to cities, embracing urban heritage, connecting people and places, encouraging education, promoting healthier lifestyles, inspiring more sustainable living. We've already made great progress with Human Cities, building on work we've done in Bergamo, Italy, at Gardens by the Bay in Singapore, and Melaka in Malaysia, to name just three. As a progressive company, we're also working closely with a number of influential partner organizations and NGOs and have already made a commitment to the Clinton Global Initiative, which established a partnership with 100 Resilient Cities, pioneered by The Rockefeller Foundation. It's just one of many steps we're taking to help cities across the world become more human. Over the next few decades, the world's population is projected to reach nine billion people. This will lead to more and more of us living in energy and resource-hungry cities. If we're to meet this growing demand, we have to learn to do more with less. Akzo Nobel is committed to developing sustainable solutions that promote efficient and sustainable living. That's why we put a strong focus on driving resource efficiency and lowering energy use. How does this benefit cities? Well, a great example is our fast increasing production of HPMOs, which are used in the manufacture of LEDs. LED bulbs help to significantly reduce energy consumption as well as maintenance costs. They also open up exciting new possibilities for smart urban lighting projects, making cities safer, more colorful, and more enjoyable places to live and work. Estimates suggest that by 2050, around 70% of the world's population will live in cities. Coping with the demands that this will create is one of the biggest challenges of our age. At Akzo Nobel, around 60% of our business goes into buildings and infrastructure and transportation. We have a big role to play in helping cities to meet the challenge they face. That's why we've introduced our Human Cities initiative, which was officially launched at the 2014 Venice Architectural Biennale. It's designed to help the world's cities become more inspiring, more livable, and more enjoyable places for people to live and work. We're focusing on six main areas where our products and expertise can make the biggest difference. Bringing color to cities, embracing urban heritage, connecting people and places, encouraging education, promoting healthier lifestyles, inspiring more sustainable living. We've already made great progress with Human Cities, building on work we've done in Bergamo, Italy, at Gardens by the Bay in Singapore, and Melaka in Malaysia, to name just three. As a progressive company, we're also working closely with a number of influential partner organizations and NGOs and have already made a commitment to the Clinton Global Initiative, which established a partnership with 100 Resilient Cities, pioneered by The Rockefeller Foundation. It's just one of many steps we're taking to help cities across the world become more human. Good afternoon. My name is Konrad Keizer. Some of you may recognize me from our Capital Markets Day in 2014, in March, also here in London. It's nice to be back. It's good to see you back. Thank you for your continued interest in Akzo Nobel. Positive change has happened in the last 18 months. You will be pleased that today, several of our businesses are in fact achieving leading financial performance. Moving forward, we now target these businesses to outperform their markets in terms of growth. We have, as you know, achieved a significant improvement in our overall profitability. Our EBIT margins improved from 9.5% in 2012 to 13.4% year-to-date, as you saw in our quarterly numbers that we announced last week. Our EBIT margins went up almost 400 basis points as a percentage of sales. This represents an improvement in our bottom line annual operating income of more than EUR 200 million. Good. During my presentation today, I will take you through the key changes that we made to our business. I will also explain how these key changes will continue to drive value moving forward. Okay. There's a bit of a delay. In Performance Coatings, we enjoy strong leading market positions. These are based on fundamental root core capabilities. As you know, we have a balanced portfolio with a balanced exposure to all of the four end user segments of Akzo Nobel. We achieve today more than 50% of our revenue in high-gross markets. As you know, our business has strong fundamental financials. Day in, day out, we deliver true customer value. This allows us to drive superior margins. We are a low asset-intensive business with highly disciplined working capital management. This delivers superior returns on investment. Last year, we achieved an industry-leading return on investment of 22%. The last three years, we achieved a significant improvement in our profitability. Our return on sales improved from 9.5% in 2012 to over 13% in the first half of this year. Early 2013, we created a new strategy to drive leading performance, including leading financial performance from our leading market positions. We created a differentiated growth strategy. Defined three key improvement areas for profitability. Last year, we also invested in growth. We opened two new facilities, our new powder coatings plant that we opened in Dubai a year ago to strengthen our position in the Middle East. Our new vehicle refinishes factory in Changzhou, China, which we opened this year. We have been able to reduce our manufacturing costs through these site closures. We are now at the almost completion of that activity. Like I said, we closed 17 factories. We still have three to go. We expect this to be finished by the first quarter of next year. We also took a look at our entire SG&A cost. I'm pleased to say that we realized an improvement in our SG&A cost of EUR 110 million per annum, representing two percentage points of EBIT improvement. The transformation of our management structure was the biggest contributor to these savings. I'd like to explain that actually in a bit more detail. Here you see what we've done. In the past, our business consisted of four business units, 12 sub-business units, and a regional structure of 72 regional management teams. In the past, we had as many as 11 layers of management from our CEO down to a coworker making paints in one of our factories. In our new organizational setup, we reduced the number of layers from a maximum of 11 to a maximum of six. In our new organizational setup, we also simplified the organization. We reduced the number of job descriptions from well over 1,500 to a total number of job descriptions less today than 200. We created a standardized and transparent organizational setup with seven customer-centric strategic market units. This transparent and standardized organizational setup allows us to drive much more forcefully operational excellence. Our new organization has brought us also some other key benefits. We have less layers of management. We're all closer to our customers. We have less people involved in decision-making. We improved our decision-making effectiveness, we're able today to make decisions much faster. We also introduced single point accountability. We no longer have layers of management reviewing layers of management. We have single point accountability that allows us to empower our people, it also allows us to hold our people accountable to really drive much more aggressive performance management. A big step forward, this new organization will really help us to drive sustainable, profitable, organic growth moving forward. Now, I would like to talk a bit more about our markets. Performance coatings is a business that over the cycle has markets that grow in line with industrial GDP. We are facing some short-term market headwinds. We all read the headlines in the newspapers about the oil and gas industry and the challenges that industry is facing as a result of the lower oil and gas prices. Yes, that is affecting, in a negative way, our protective coatings business, where we see actually quite a significant contraction right now. We also have seen a slowdown in the emerging markets. As you are aware, more than 50% of our revenue is achieved in the former high-growth markets. I say former because if I reflect back on the last two decades, typically high-growth markets for us have grown three to four times as fast as our business in the mature markets. This year is a clear change. If you look at the environment this year, we see the former high-growth markets growing only one to two times faster than the mature markets, and some of them are actually declining. Finally, I'd like to make a comment about our marine business. We have seen positive trading conditions this year, as Ton mentioned in his introduction, the order books At all of the major shipyards in Korea, in Japan, in China, are actually coming down. I'd like to present a bit more detail on that. The graph on the left-hand side shows the order book of the big yards, as well as the deliveries of new ships. What you actually see is that the delivery of new ships for the first year in many years was actually positive this year. We've seen new build deliveries at the yards up roughly 2%-3% this year from prior year. That's the first year after many years of decline in this industry. We actually were hopeful that this business was bottoming out this year. Unfortunately, if you look at the contracting for new vessels, the Clarkson industry data reports a decline of over 30% in contracting for new builds this year. You see as a result, the order book coming down again. This will mean that actually in the second half of next year and thereafter, you will see again, most likely a slowdown in this market. Yet, we continue to be quite upbeat about this segment. This is a clear example of a market where we have a strong ability to win. Even in a declining market, we show that we can grow our business. For the marine business, this is very much based on differentiated technology. As some of you may be aware, we were the first to introduce many years ago in the industry a biocide-free marine fouling control coating, our famous Intersleek product range. Last year, we introduced the newest generation of this product, and it is actually being very well accepted by the market. It has an improved slime control. That was still one of the issues we wanted to fix. This is truly a leading and superior product out there in the industry. I'll come back on that later in my presentation with an example. I also like to mention our product offering in the more conventional marine antifouling segment, where we have a biocide-based marine antifouling product, but it does have a controlled release of the biocide over time. Again, this is a unique product offering in the industry based on patented resin technology that has been accepted very well by the market this year. Some challenges in the bigger macro environment, but our business actually well-positioned to gain continued shares. Yeah, oil and gas. I mentioned it. We probably all have read the various headlines about the challenges the oil and gas industry is facing. Based on the lower oil price and also actually the lower gas price, a lot of big projects today get canceled or at least delayed. Yes, this is affecting our protective coatings business, where we typically supply large on- and offshore projects, wells, rigs for the oil and gas industry. We are seeing more favorable conditions, though, in the downstream sector. Whereas upstream CapEx has been cut anywhere between 20%-30% by the majors, we see that downstream, there is some reduction in CapEx spend, but it's in the order of magnitude somewhere between 5%-10%. This actually for us means we still have a good, solid opportunity to grow our business downstream, where actually our share is weaker than upstream, where we have a very strong leading position, as you know. We do have the leading technology for the oil and gas segment. We're actually now building our distribution capability globally to also make the same inroads downstream in oil and gas. Good. If I summarize it, we have some short wins, some short-term headwinds in our markets. Yes. We feel very well positioned to face these. You are aware we have industry-leading global brands, like our International brands. We have industry-leading technology. Most importantly, we have reference customers in all of the segments where we compete. We have strong relationships with these reference customers. I'm actually very pleased to be able to announce here we continue to expand on these partnerships. This year, our vehicle refinishes business gained global approvals, global technical approvals with Daimler, and now actually we are in a position to roll out our vehicle refinishes products to all of the Mercedes dealer network globally. A good, nice customer gain achieved this year. Good. Talking a bit more about our strategic position and strategy. First about our position. If you look at the 10 market sectors where we compete, you will see that in nine out of 10 segments, we do have strong leading number one or number two positions. Looking at these market segments overall, over the cycle, they are attractive markets that typically grow in line with industrial GDP. Some of these segments would outgrow industrial GDP, like powder, specialty plastics, and aerospace. Powder technology continues to make inroads in replacing liquid technology. Our specialty plastics business continues to do well because of continued strong spending by consumers on all these nice electronics gadgets that we are painting. Finally, aerospace. We continue to have a very healthy customer base with significant backlogs in orders, that business continues to do very well. We have a series of markets in performance coatings that grow more in line with industrial GDP. Our wood finishes business, our coil business. Here we supply products to the building industry. These follow very much construction markets, metal building products, wood floors, wood window profiles, doors, kitchen cabinets, all these kind of products. Here we see growth, like I said, very much in line with industrial GDP. We also have some businesses that are growing less than industrial GDP. I already made some comments about marine. I already made some comments about our protective coatings business. Let me now make some comments about our yacht and our packaging and our vehicle we finish this business. These are solid, strong, robust businesses that don't grow as fast as the GDP, they are much more resilient. They are less cyclical than some of the others. You will see that in a downturn, they actually don't decline as much as the overall economy either. We're actually quite pleased with these businesses in our assortment as well. All in all, strong leading positions in attractive markets that overall grow in line with industrial GDP. Looking at our strategy, looking at our guidance moving forward. Continues to be our vision to stretch each of our businesses to their full potential, to benchmark them against best-in-class peers, and to target leading profitability in all of our segments. We have made a lot of steps forward there, I'm actually pleased now to announce that our guidance, in line with the company guidance moving forward, is now for our business to trade with EBIT margins in a range of 12%-14%. A big step up from our historic EBIT margins that were actually in a range between 9% and 10%, as many of you may remember. No change in our strategy. We will continue to execute our differentiated growth strategy. We will continue to execute our performance improvement programs. These have actually helped us to achieve the big step up in profitability that you have seen. I would like to present some nice proof points of our delivery of our strategy. We are outgrowing our markets in targeted areas. You see nice examples here in powder, nice examples in protective, nice examples in marine. In some of these markets, actually, when they are declining, we clearly see much less contraction than some of our competitors. In growing markets, we are clearly outgrowing our competitors. An example in powder, if you look at automotive, an attractive segment in automotive actually are the alloy wheels. They still take share from the conventional steel wheels, and you've actually seen growth rates recently somewhere between 6% and 8% consistently per annum. In this segment, we have a unique combination of a powder primer, a liquid base coat, where we can make all kinds of nice metallic effects that you see on wheels nowadays, metallics, chrome looks, and then on top of that, a powder clear coat. This is a unique offering in the industry, we're actually pleased to say here that we're making significant gains in this segment with this unique offering that we can only do because we're leaders in both powder as well as in liquid. Good. Some comments about our profitability improvement initiatives. These are the big levers that have improved our profitability, and that will continue to improve our profitability moving forward First of all, on external spend. We have installed a capability in our procurement organization, in our RD&I organization, to achieve annual cost downs together with our suppliers. Taking costs out of the formulations of our paint through leveraging our negotiating power, also through true value engineering, changing raw materials for cheaper raw materials with a similar performance. This is an important initiative. This is one of our biggest value drivers, we will continue to drive this moving forward. Our supply chain costs. Yes, we have achieved significant improvements in our manufacturing costs. Our focus has not only been on taking out duplication out of our factories. We have also launched a significant initiative to drive operational excellence in our entire supply chain. Our target is to deliver annual productivity to offset the annual inflation in our cost lines. David Allen, my colleague, our supply chain director, will later on present you with some nice examples of how we're driving productivity, how we're improving service levels in Performance Coatings. A key initiative that will continue to be a key initiative moving forward. Driving commercial excellence. As you are aware, our focus has been, in the last few years, on creating a very lean and efficient setup for our commercial organization. Our focus will be moving towards improving the effectiveness of our sales force. Yes, we focused very much on the efficiency in recent years. We're rolling out a capability-building program. This year, we started to leverage best-in-class selling practices for each of our go-to-market models in our commercial organization. These best-in-class selling practices, selling processes, will be supported by training, capability building, also by tools. We started at the beginning of this year to roll out a consistent single CRM solution for the entire business area. The beginning of next year, all of our sales managers in the field, frontline salespeople, will get a new redesigned sales force incentive program that will be a much direct tie to their ability to deliver organic growth and their sales compensation. All of these clearly drivers to accelerate our organic growth. Yes, that is becoming a much stronger priority as more and more of our businesses are shifting to achieving leading financial profitability. Good. I'd like to elaborate a little bit more on this growth agenda moving forward. For an industrial business like Performance Coatings, innovation is a key value driver and is a key driver of organic growth moving forward. Looking at our RD&I organization globally, we have roughly 2,000 people, a little over 2,000 people, 2,000 scientists that are based in the various strategic research centers all across the world. If you look at the strategic drivers for our RD&I program, there are four groups that you can distinguish. Four areas of focus that you can distinguish. Customer efficiency. In an industrial business like ours, a lot of innovations are focused on improving the efficiency at our clients. A lot of our innovations are targeting more robust paint systems that allow our clients' coil lines, packaging lines, to run at higher first-time quality. We're lowering film builds. We're taking out layers of paint. We're increasing throughput efficiency through lower bake temperatures, faster dry times. A lot of innovations focused around taking cost out for our customers, creating value through our products for our customers. A lot of our innovations are also focused on enhancing the value of our customers' products. We bring added functionality to the products of our customers. This can be corrosion protection, this can be fire protection. This can be even things nowadays like the feel of a coating, like you see on this nice cell phone here on the picture. The feel of that coating is very important increasingly. Obviously, color continues to be one of our core capabilities as well. Color as a differentiator for the products of our clients. Increasingly, you see us making innovations around big developments like digital and the availability of big data. I'll actually share some nice examples with you later on in the presentation. Internal efficiency, that as well finally is a key contributor for our RD&I organization. Continuing to take costs out of the formulations of the paint, continue to improve paint manufacturing processes. Here you see a nice example of how we are achieving efficiency improvements for our clients in the airline industry. AkzoNobel was the first paint supplier to introduce a base coat, clear coat concept for the airline industry, replacing the conventional monocoat systems. These are actually thinner layers of films, thinner film builds that have a faster dry time. On average, they take one or two days out of the paint process for large customers like Airbus, like Boeing. This is a big value add for these clients. The industry is facing backlogs. If you imagine a plane like this, an Airbus A380 or a new Dreamliner of Boeing, takes about eight days to paint such an aircraft. AkzoNobel taking one or two days out of that process is a big value add for these clients. Sustainability. As Ton mentioned in his opening remarks, sustainability continues to be a strong driver for our business. Intersleek, our biocide-free marine fouling control coating, is achieving fuel savings for our customers. Typically, we can achieve 9% fuel savings for clients in the marine industry. It is very nice that this year we achieved also an independent external recognition for this. The Gold Standard, which is an NGO, now actually will also give carbon credits to our clients when they apply the Intersleek products on their vessels. To give you an idea, if you look at a ferry boat like this, per annum, this company can actually claim carbon credits of roughly EUR 25,000 through the reduction of carbon emissions, through the reduction of fuel as a result of this company applying Intersleek products. Again, an example of a strong value add to our customers. Here you see innovation facilitated by digital making use of big data. I think some of you may be aware of the digital colorimeters that we are now using in our body shops for our vehicle refinishes coatings that are replacing the conventional color documentation. Some of you might be aware also of Interplan, which is an iPad application software that predicts the maintenance requirements, the requirements for paint in the oil and gas industry. What is our newest innovation, which we will roll out actually in the coming months, we kicked this off last month, is our Intertrac mobile software. What we do here is we make use of big data. As you may be aware, the routes of all vessels globally are tracked through the global positioning system, AIS. We are now collecting these data, and we're actually referencing that with the fouling requirements that are there for these ship routes. With this software, which is proprietary, we're the only paint supplier that does this. With this software, we can actually predict the fouling needs, the fouling requirements for our customers, and we can design a very customer specific solution for their fouling requirements. Again, a big gain for our customers. Finally, innovation continues to play a key role in taking costs out of our paint formulations. Value engineering, product rationalization continue to be key priorities for us. The last two, three years, we've made a significant step in reducing our SKUs. I am very pleased to explain this. Our clients have not been impacted by this. A lot of our customers do have customer specific products. We have customized products to optimize lines at our clients. As long as customers pay for this complexity, we're obviously very pleased to offer this. Where we have made a lot of reductions in our SKUs is at the level of raw materials. We have implemented for our core technologies a building block concept where we've standardized our pigment dispersion lines, where we've standardized our resin platforms, and where we even standardize a number of the additive packages. This has been a major contributor to the margin expansion that we've seen in the last two, three years. Through this simplification, through this reduction in raw materials, our procurement organization is much more able now to leverage our spend and to drive down our raw material cost. This, again, continues to be a priority moving forward. Good. Let me summarize now. You have seen a significant improvement in our profitability, improving our EBIT margins from 9.5% back in 2012 to first half profitability above 13%, and you saw our third quarter numbers last week at 13.4%. Our expected outcomes, our guidance moving forward, is that now we will actually use this foundation, and we will use our current profitability as a floor, and we're now expecting a range between 12% and 14% EBIT margin in the coming three years. The resulting return on investment for our business area, we are expecting an outcome here of more than 25% return on investment. Profitability improvement, like I said, has been very much achieved through execution of our differentiated growth strategy. Profitability improvement has been very much achieved through execution of our profitability improvement initiatives. That strategy is going to stay. You will see more and more businesses moving forward, expanding into a situation where they have leading performance and where we target to outgrow our markets. Yes, we have some short-term challenges in our markets, we feel well-positioned to face these based on strong brands, strong technologies, strong relationships with our clients. Last but not least, based on the fact that we appointed two years ago the best men and women in the industry to lead this business moving forward, to lead this business to leading performance in each one of their segments. With that, I'd like to close the presentation and open it now up for some questions. Let me start at the end of the room. James, BNP Paribas. Couple of questions, please. Firstly, on Protective, can you add a little bit more about your strategy of moving downstream? Clearly, if your view of the market is right, and I'm sure it is, that's going to be more competitive. How are you going to avoid pricing pressure? Then secondly, in Marine, can you remind us what the share of new build versus maintenance is? The old question, is there any significant profitability difference between the two? Thank you. Okay. Okay, James. Let me first comment on Protective. We see downstream as well as maintenance as a big opportunity for our company. If you look at the pressures from the current low oil and gas prices, there have been some spend reductions in the order of 5%-10%, this market is big enough, it is actually significantly bigger than oil and gas upstream, that for us, this represents a big growth opportunity. The most important assets that we have, and these are clear competitive advantages, are our leading technologies specifically for fire protection. Our fire protection technology is specified by all of the major oil and gas companies. We are now building distribution globally to penetrate that market. For this market, we also have developed this iPad tool where we can actually predict the maintenance requirement of a refinery, for example, of a big chemical complex, and that is also an add value that is very much appreciated by clients. This has been a very successful rollout. On Marine, you asked the question, what is the split between new build and maintenance or dry docking, as we call it. Overall, in the market, a little over 50%, let's say close to 60% of the market sits in new build, with the rest of it being dry docking, maintenance and repair, and some coastal activity. We are well-positioned and have a leading position in both of these segments. In terms of profitability, there is not much difference between these two. They're both very attractive markets for us where we have a strong ability to win, as I said, even when markets are facing some challenges. Sorry. Hi, it's Jeremy Redenius from Bernstein. I have two questions, please. The first one, we can see that the business has delivered margin and return improvements, on average, over the last three years or so, volumes have not grown. Could you talk about the drivers behind the lack of volume growth historically? Secondly, you mentioned changing the incentives for the sales force to help encourage organic growth. Can you talk about some of the details behind those incentives, please? Yeah, sure. Okay. Let me first comment on volumes. Let me be very clear, Jeremy. We prioritize profitability over volumes. You have seen a very significant pickup in our profitability. If you look at volumes and the development globally, there are quite some differences by region, as you well know. There are quite some differences by segment. We are outgrowing our markets in targeted areas. I will say there are also segments where three years ago we were clearly not at the best-in-class leading performance in terms of profitability yet. There's examples where we have chosen to walk away from high volume, low price, low margin product. Your second question about sales force incentives. Sales force incentives is one of the, in our opinion, key drivers to really drive performance in the commercial organization. As you might be aware, Jeremy, there is a company-wide program on commercial excellence, initially very much focused on the efficiency of the setup of our sales organization. Now very much focused on the effectiveness, on the ability of our sales managers to deliver organic growth. What we found when we looked at compensation is that a lot of the target setting were actually group targets. What we found when we looked at compensation is that there wasn't much difference in payout levels when you compared the various years. What we found was that there wasn't enough, let's say, individual accountability. What you will see moving forward is that the sales managers will see a bigger part of their compensation becoming variable and more directly linked to their ability to actually deliver profitable organic growth. Sorry, just one next- Yeah, there's a lot of questions. Let me move to the next question, sorry. We can maybe come back later, but yeah. Sorry. Gentleman in the middle. Yes, sir. Peter Clark, Société Générale. I've got two questions on margin. Yeah. The first one is the target, the 12%-14% target. You're on course for over 13%. I know your restructuring's low this year. You have a good mix. Is part of the caution or the restraint there, the outlook in the oil and gas Protective and the Marine side because they're higher margin segments? The second question is, I think in March 2014, you were saying you were challenging yourselves to beat the competition- Yeah in terms of the performance, if I look at PPG and Valspar- of course, their Performance Coatings divisions are probably 400 basis points higher. I accept they're more North American-focused. Yeah. PPG has OEM auto. Valspar has that very concentrated packaging coating, good industrial, but it's still a very big gap for me. I would like your comments on that. Thank you. Okay. Let me first comment on margins and our guidance, what our guidance is based on. You are aware, the expected outcome for this year for Performance Coatings that we set was actually an EBIT margin of 12%. We are very confident that we will deliver that outcome. That represents a step up improvement from historic trading levels, which were for many, many years ranging between 9% and 10% EBIT margin for the overall business area. We have achieved a step change improvement in profitability, very much sitting in operating costs, but also indeed some margin expansion, and actually a lot of the margin expansion tied to the capability to drive down cost in procurement to value engineer products as well as margin management. The confidence that we have in our numbers this year, I think is reflected in this guidance moving forward, is 12%. Let me try to help you a little bit with insight in these numbers. Profitability is up if you compare it to 2012, almost 400 basis points in EBIT margins. We went up from 9.5% in 2012 to 13.4% year to date, as you saw in the third quarter numbers. Indeed, if you look at SG&A cost reduction, that has been a big factor. The EUR 110 million representing 200 basis points in terms of EBIT margins, it is a big factor. Forex, to your point, is actually having a favorable impact on the absolute EBIT and the absolute EBITDA, but not so much on the margins. We do have our costs very much sitting in the regions where we achieve revenue. If you look overall at our profitability improvements, significant part came from fundamental changes in our operating costs, fundamental changes in the setup of our manufacturing, fundamental changes in our SG&A costs, and another part did come from margin improvements. That's the headline. Thank you very much. That was the Q&A for Performance Coatings. It's now a big pleasure to introduce Ruud Joosten, who's heading our Decorative Coatings division, a long and dear colleague of mine. Thank you. Thank you, Conrad. Good afternoon, ladies and gentlemen. Welcome to the Decorative Paints part of the capital markets day of AkzoNobel today. I'm extremely proud to be here today to lead this business. Although I'm practically all my life in this business, I'm still excited every day because this business adds color to people's life. Today, I would like to reflect on the action we've taken over the last couple of years to improve our business and improve profitability. I would like to focus on action going forward to even further improve our business and grow the business. I will follow the same agenda as my colleagues Werner and Conrad did before me. First, have a look at our Decorative Paints business at a glance. We are a leading supplier of decorative paints with a strong, diversified geographical spread. We have a strong set of global brands like Dulux, Coral, Flexa, Sikkens, and many more. In 2014, we generated almost EUR 4 billion of business with an operating income of EUR 248 million. All our revenues are generated in the buildings and infrastructure end user segment. Most of these revenues are coming from the maintenance segment, about 75%. 25% is coming from new build or projects. This can differ along the maturity of our markets. For example, in China, a bigger percentage than 25% is in the new build or project business. We are strongly represented in Europe, but also generate more than half of our business in markets outside of Europe, such as Latin America and Asia. Based on our strong capabilities, key capabilities, we drive value for our customers. For example, for our end user, for our customers in the retail segment, we provide them colorful cities, beautiful living spaces, and innovations to make their lives easier and more inspiring. Also for our professional painters, very important group as well. We provide them with a package of services, products, and tools to make their life easier, but also the life of their customers. We ensure sustainability. Sustainability is at the forefront of our innovation agenda. The focus is on bringing sustainable products and their benefits to our customers. It's our vision not to be just a leader in terms of size, but also in performance. On the next slide, I will show you the progress we made over the last couple of years since we've introduced our strategy. Strategy we introduced in 2013 was focused on two key pillars. First, we wanted to grow profitably in high-growth markets. Second, we wanted to fix Europe. Since the rollout, we've generated profitable growth in many key countries outside mature Europe, including China, Brazil, Indonesia, Turkey, and South Africa. We also achieved profitable growth in mature Europe despite challenging economic circumstances in many of these markets. In recent years, we haven't seen a growth trend for Europe as a whole. Although some countries performed well, many others remained challenging. We have implemented a new operating model in Europe, which has enabled us to significantly reduce cost and complexity. It allows our local companies, our local units to really focus now on sales and marketing to their end customers. Finally, we divested our non-core building adhesives business in Europe. We changed our distribution model in Germany, where we sold our integrated network to our own customers, the wholesalers of trade paints in Germany, enabling us to reduce cost and complexity and further penetrate the trade market in Germany. All these actions together are reflected in our profitability, which has been showing strong improvements since 2012. As you can see on this slide, our return on sales increased from 2.2% in 2012 to 6.3% last year, and during the first half year of 2015, it was 8.8%. We also made good improvements on return on investment, which increased from 3% in 2012 to 10.4% during the first half-year of 2015. Please keep in mind that in 2013, we sold the building adhesives business, giving a little spike in operating income in that year. Moving to our markets. Having an outlook on the decorative paints market. We use several leading indicators to look at our market. Ton already showed the consumer confidence one. That's of course important in deco. Also housing transactions is very important, as people tend to paint their house when they move house. Here you see the maintenance and renovation and repair part of the construction market. That's very important too, because 75% indeed, like I said before, of the decorative paints market is depending on the maintenance market. Unfortunately, markets have become a lot more volatile since the summer. The outlook for many markets has worsened for the short term. However, it's still worth taking a look at the longer-term developments in the markets. The graph on the left shows that in Europe, historical annual growth has been limited during the years 2012 to 2015. North America, China, and India showed higher growth. In Brazil, the market did not grow at all and actually shrank slightly. However, when we look at market forecasts beyond 2015, we see prospects changing. In China in particular, we see market expectations decelerating and smaller growth expected on short-term and medium-term. In India, growth is expected to pick up further, while in Brazil, growth is expected to recover only in the medium term. Current market conditions in both Brazil and Russia are challenging, which is very clear on the second graph, and we don't expect this to change much in the short term. The North American market continues to show decent growth, similar to what we've seen over the last couple of years. In Europe, our largest paint market, growth is expected to pick up to 2.8% year-on-year. There are big differences in Europe between the individual countries, and the outlook is therefore mixed. Let's take a look at AkzoNobel's position in the decorative paints market. We have a strong number one position or strong number two position in all regions where we operate. We have a clear leadership position in the U.K. and Ireland, but also in Europe as a whole. In Southeast Asia and China, we have a strong number two position, and in Latin America and South America, we have a number one position as well, based on our strong position in Argentina, Uruguay, and of course Brazil. These positions are important as in decorative paints, relative market share and scale of operations is really driving growth and profitability. Just to remind you, in this slide there is one picture, there's one country or region that's not, let's say, shown in this picture anymore, and that's North America. In 2013, we sold our North American decorative paints business following a strategic review. When we sold the business, we clearly had not a number one or two position in the market. By selling the North American business, we got the strategic freedom to really focus on fixing Europe and grow profitable in the rest of the world. We are present in many other regions with strong market positions. These strong market positions in various regions across the globe provide AkzoNobel with a unique competitive position and demonstrate the resilience of our business model. AkzoNobel is the only player with significant scale of operations that's running the business through a diversified portfolio of regions while also maintaining a strong presence outside mature markets. Many of our peers are either limited in terms of scale or have a strong focus on mature markets or a specific region. Our scale and geographic diversification make our business resilient to local shocks and also provide us with flexibility to shift our focus to regions where we see opportunities for profitable growth. Besides having strong number one and two positions and improving these positions even further, over the last couple of years, we improved on many key business metrics in our business as well, and more and more that's based on a continuous improvement program where indeed my colleague Dave Allen will tell you more about later in his presentation. I already highlighted improvements in return on sales and return on investment. We've also shown improvement in some other metrics. First of all, our overall volume increased by 4% between 2012 and 2014, despite difficult market conditions and divestments. We also reduced the number of warehouses in Europe with 38%. Our working capital went down another 4% to 8.5%. Focusing on complexity reduction, we reduced our number of SKUs from 20,000 to 15,000, taking out many duplicate products and looking at the tail end of our portfolios. Finally, very important, our percentage of revenue generated by innovation has increased from 17% to 30%, showing that innovation indeed is a key driver in our Decorative Paints business. Many of these innovations have sustainability aspects in them. I will show you later a few examples of that as well. One of the key drivers of fixing Europe was the introduction of a new organizational structure, a new business model in Europe. This was successfully implemented in the last quarter of 2014. The new structure is designed to take advantage of our scale in Europe, especially in back-office functions like finance, HR, and IM. These have been combined on a regional European level or even at a global level. The big advantage of the model is that our local operations, our local management, is much more focused on the end customer than our professional painters, focusing on marketing and sales. As a result of all these improvements, we now have a more agile and competitive business, which is better positioned to achieve profitable growth in future years to come. Of course, continuous improvement is part of our culture. We will continue to look for further improvements in efficiency on an ongoing basis. Given all these developments, we believe we are now better positioned and committed to our vision of becoming the leader in the Decorative Paints world in both size and performance. We will maintain our strategy and enter the next phase. After several years of significant transformation, we will move towards a period of more continuous improvement. We guide for a performance range, which reflects the expectations for the markets we operate in for the coming three years. We believe that our new operating model, better overall cost structure, our strong market positions, and our strong set of international brands are providing us the basis to achieve a return of sales between 8%-10% and a return on investment of higher than 11.5% by 2018. While we hardwire our changes in behavior, we will also drive a component of organic growth. Using the new foundation of operational excellence we built, we aim to grow in line or faster than relevant market segments. Given current market conditions, growth is around 2%-3% for the period. However, from our perspective, there are some challenges in 2016. Several of our markets show contraction. We will continue to build on internal development and solidify our recent transformations. Strategic focus areas and the standardization of processes and tools are entirely aligned with the rest of AkzoNobel. To reflect the next phase of our strategy, we reviewed our strategic actions. With Europe now fixed and changing global market conditions, especially as a mature Europe, changing our actions will again center around two pillars. We will focus on winning locally and leveraging our scale. What do these actions really mean for our Decorative Paints business? Let's start with a few examples of winning locally. We already have a strong number one or number two position in all the regions where we operate. We have a clear plan, a detailed plan per country to win locally for each of the markets where we operate. To give you an example where we have already a strong market position with very clear activities to get even stronger, I like to use the U.K. The U.K. is one of the largest paints markets in Europe with a EUR 1.4 billion market size. It's a country, indeed, where we have already for a long time, a fantastic market position also based on our almost institutional brand, Dulux. Of course, we are keen to make that even stronger. What are we doing now action-wise to improve our position? I'm delighted to announce the Dulux Amazing Space service. It's a completely new service we offer to our end consumers that's rolled out as we speak, where customers can make an online appointment with a professional designer using digital images to create personalized decoration advice for their home. Making their life, of course, much easier and inspiring them to indeed decorate their house. A huge new initiative that we're taking in the U.K. today. We also launched a series of products to work and to anticipate on the trend of wellbeing and energy saving. The range will be called Dulux Living Spaces, Beautiful Living Spaces, giving consumers products that indeed will lower their energy bill by using interior systems mostly. In this slide, you see an example of the repositioning of our trade assortment in the U.K. with a brand-new livery and a complete repositioning of our trade assortment. Later on, you will see that we already use this image, this livery, also in China in the professional markets. Only a few examples, proof points to show you that we will grow our position even further in the U.K. Another good example is Indonesia. Other side of the world, a market today of EUR 0.4 billion. I think a very interesting market. We already have a strong number one position in this market, but with more than 200 million inhabitants, a strong growth driver on the long term. These people use still, on the average, a low volume per capita in decorative paints. Long term, this is a fantastic opportunity for AkzoNobel, again, with our Dulux brand. Indeed, the Dulux brand is also the driver for success on short term. We are really driving sub-brands under the Dulux brand, like Weathershield and Dulux EasyClean. We're also leveraging the strength of the Dulux brand by extending the portfolio of brands, for example, with Dulux Pentalite ceiling emulsion range. Finally, which is very important in Indonesia, we further penetrate the big archipelago with a tailor-made distribution model using distributors. Again, just a few examples on how we further strengthen our position in an already strong situation in Indonesia. Besides actions in specific countries to win locally, we also focus on eight cross-BA initiatives, which have the potential to support growth as driving further profitability improvements. The initiatives tie in with our processes and business area capabilities. These initiatives are cross-functional in nature. We already have great examples of successful implementation across different geographies. I would like to spend some time on three of these initiatives to give you some more depth on what we mean by these global initiatives. The first one is brands. Our brands are one of our strongest assets. The goal of this initiative is to build winning brands both in trade and retail and to gain maximum competitive advantage. To achieve this, we will continue to identify further synergies across geographies to improve our effectiveness. On the slide, you see a few examples of very strong local concepts like Ambiance and Colours of the World that we are rolling out globally as we speak. You also see the example indeed, again, of the trade U.K. repositioning that's also being implemented now in many other markets in Europe, but also in China. We will focus on developing best-in-class creative work as well. You see a few examples of this as well. You see the Ambiance campaign, but also a strong Sikkens campaign that was developed for Holland that's now being rolled out over Europe. Finally, we want to maximize our investments. We need to ensure that we have the right product architecture and innovation pipeline globally. This will include the further strengthening of our floors and trade brands. The next example is painters. Painters is an extremely important group for us because we did some research on that. Coming from the research, we see that more than 70% of decision-making on paint brands is being influenced by painters, and that's globally. Whether there are indeed different business models all over the globe, the professional painter is an extremely important group for us to further strengthen our relationship with. In this slide, I show you an example of how we can win locally with the painters initiative in Brazil. For example, in Brazil, we introduced six years ago, the local concept Tudo de Cor, which was based on the global initiative, Let's Colour initiative. In the meantime, we have implemented more than 1,000 projects in Brazil, small to very big from, let's say, one house of a consumer to whole parts of a city and even favelas. We painted, for example, the biggest favela together with the inhabitants in Rio de Janeiro this year. This program is very important for the painters segment as well as we train painters as we do these projects, increasing their self-esteem and their pride. Luckily, dozens of great personalities in Brazil, the likes of Neymar, for example, have supported us in this initiative by naming us on their social media. We also introduced Clube de Cor. That's a local implementation of a global concept in loyalty programs. Till today, 45,000 painters are already active in Clube de Cor concept, giving us a much more stronger tie with the local painters. Our last example is sustainability. Sustainability is business and business is sustainability. For us, these two cannot be separated. We've been a leader in sustainability for many years. In many of our markets, the focus on the use of sustainable products is becoming more and more important. In many cases, it's also driven and encouraged by governmental actions. China, for example, the government has increased regulation linked to VOCs. We see the demand for more sustainable paints is rising rapidly amongst Chinese customers. AkzoNobel has been a frontrunner in the introduction of more sustainable products in the Chinese market, as you can see in the middle of this slide. You see also that in 2014, already a significant proportion of our Dulux revenue is related to our non-additive hero products, and we believe that this share will only increase in the coming years. It's of key importance that we continue to focus on the innovating pipeline of new products with sustainability added value. Whilst we are known for leadership and sustainability, we believe we can do more. When we look at the trends that we are seeing in our end user segments, it's clear that demand for more sustainable solutions is rising rapidly. With our overall wellbeing becoming more important, regulation driving lower VOCs, and demand for energy-efficient solutions is rising. We are addressing these trends by choosing to focus on water-based products. We will begin moving the industry away from solvent-based products to water-based products, as well as introducing more products that help manage energy use. At the same time, we also want to inspire our customers with color and offer them the opportunity to customize our product to their needs in stores. Now, let's look at a couple of successful innovations we introduced in the last couple of years. First one is the Visualizer, and this is really a cool innovation we introduced in 2014. It's based on a real-time augmented technology, only developed for AkzoNobel. It gives the consumer the opportunity to walk through their homes and rooms, changing color in real-time and see the end result in their individual home and houses. Since 2014, when it was introduced in 40 markets, the Visualizer 1.0, it has now been downloaded more than 5 million times and it has won multiple awards in the digital world. I'm proud to say that during fall 2015, we are now introducing the Visualizer 2.0, giving the consumer an even better experience, now adding the functionality of exteriors. Also, an important development I like very much personally is that now consumers can also share their own inspiration, their own ideas that they develop online with friends and family via social media, Facebook, for example. We have high expectations from the Visualizer 2.0. It can be downloaded from the App Store free, I always advise you to do that as soon as possible. It will be introduced in 120 countries in 28 languages. Another example of a global concept BA initiative being implemented locally is EasyCare. Dulux EasyCare is a paint that enables you to easily clean common household stains from your walls without damaging the surface. This activation concept was developed between global and local marketing, and it was first introduced in Ireland. After that, it was transformed or translated fast and was introduced in Southeast Asia and the Middle East in 2014. In the spring of 2015, it was quickly tailored for Poland and introduced there. Within just four months, the EasyCare concept has penetrated into more than 1,100 stores in Poland, and we reached the full year target within three months. That's all thanks to this global initiative with our scale, we can use to roll out fast in several geographical areas. Of course, it's also based on a great product. Another example, I already mentioned that in China, demand for more sustainable paints is growing fast. The great example of one of our products we're offering here is the Dulux Professional Solvent Free Flooring Paint. This floor paint was introduced in 2015, so only this year, but already has received a lot of recognition by owners and users. Again, we are demonstrating our leadership in sustainability by introducing this in a market, the flooring paint market in China, that's really recognized by high solvent-based products. The products we offer are environmentally friendly produced. We look at the raw materials, but also at the production process. Going forward, we believe that our green flooring paint will help to further boost the construction of green buildings and promote new development pattern of domestic flooring industry in China. To summarize. Coming back to our performance. We have made significant progress towards 2015. We believe we have the right strategy in place. We will continue the momentum that we built up over the past few years. We believe there is scope for further improvement in the coming years, as reflected in our range for 2018. Our new operating model, our better cost structure, our strong market positions, and our fantastic portfolio of brands provide us with a strong basis. With our focus now shifting to winning locally and leveraging our scale, we believe that we'll be able to achieve a return of sales between 8% and 10% and a return on investment higher than 11.5% by 2018. To recap, we are a global leader in decorative paints with strong number 1 and 2 positions in all the regions where we operate. Our competitive position is unique and diversified. Markets have shown volatility lately. The outlook is uncertain. We can reasonably expect moderate growth in our markets, and we are well-positioned to benefit from this. We have transformed our business by changing our organizational structure in Europe, by focused cost containment, and by reducing our working capital as a percentage of sales. This means we are now in a better shape to improve ourselves further and become a leading performer. We will continue to leverage our sustainability leadership with Planet Possible through our impressive portfolio of innovations. With our strategic priorities now geared towards winning locally in our key markets and leveraging our scale, we believe we are on track to become the leading global decorative paint supplier in terms of both size and performance. Thank you very much. The floor is open for questions. Please. Oh, sorry. The mic is there. Thank you. Christian Faitz, a couple of questions. I was surprised to see you're number 1 in Western and Northern Europe. I guess that figure does include Germany. How is your market position in Germany at the moment in terms of share, and how do you plan to compete against, for example, the Alpinas of this Caparol of this world? Second, your strategy in China, what is your current strategy in China? I do remember that five years ago or so, you tried to go to the B and C cities. You seem to have changed that strategy. How are you competing against Nippon, Kansai and in China at this point in time? Thank you. Maybe you can later explain the first question. The second question about China. Indeed, the first introduction to the Chinese market was in tier 1, tier 2, maybe. More and more also, the other cities, the other parts of China are developing. Of course, we are developing that. We also have investments to prove that in South China, where we opened a factory a couple of years ago, two years ago. We are now investing in Chengdu, in a Wukong factory that will be opened in 2015. We are penetrating into the larger China as well. We've seen double-digit growth in China for many years in decorative paints at AkzoNobel, and we believe also long-term, China is a very attractive market for us. The first question, I couldn't really hear. It's essentially about market share in Germany. I do understand that the German market is kind of a closed market to the international painters, not only to AkzoNobel, but also to SigmaKalon. How are you competing against the Caparol Group? Because you have changed the distribution channel. Like I said the Sorry. Not everybody's happy about this, by the way, I hear from painters, how do you tackle that important European market? Thank you. Well, like I said, we decided last year to sell our distribution network to our own customers. We picked the key distributors in Germany, and we sold our 72 stores to these parties because we believe in that way, we have a faster penetration because we made use of all their stores combined with our 72 stores. The model is to reduce costs for us and to further penetrate into the German market. That is working. I don't go into, let's say, local profitability or development, I can tell you it's working for us. Another question. Where is the mic? Yes. Thank you very much. Thomas Wrigglesworth from Citi. Two questions, if I may. Firstly, just talking about pricing and margins. Given your market share positions, it feels like the history of margin improvement has been delivered by cost performance rather than getting higher prices through to the customers. Is that a fair assessment? In the future, how can you better extract the value of the premium positions that you have and the premium products? That's the first question. The second question is, when I relate the growth indicators that you've given on slide 92, then I look at the volume growth that you've achieved, I see a bit of a disconnect. In the future outlook after 2018, what gives you confidence that you're going to be able to capture the volume growth that you anticipate the end markets to see? Thank you. Yeah, going into that one. Like Ton said also in his presentation, markets are volatile at the moment. There are serious headwinds in some of our big markets, like Russia, for example, Turkey is volatile at the moment, we have strong positions over there. It's very difficult to predict on short-term. This is a more medium-term prediction we do. Looking at the total mix of countries where we are with our strong positions, we believe that this is reasonable going forward. That's why we took this percentage into our estimates. Your first question, the combination of indeed cost containment and margin improvement on our pricing improvement due to the customers. I don't go into, let's say, line by line our profit and loss, I can tell that this profit improvement is really based on a combination of growth over the last couple of years, from 2012 to 2014, in a profitable way. Just as Konrad explained, we are going for profitable growth, both in Europe and in Southeast Asia, specifically in this period of time, combined with less complexity and cost reduction. These two together gave the profit improvement. Yes, you have the mic. Yeah. Peter Clark again. I've got two questions. The first one of the numbers that stands out for me in Deco is the CapEx to sales. Now, I know you've been building Ashington. You've obviously had some restructuring CapEx. The big push has been the emerging markets CapEx. Given the outlook in some of the emerging markets, is that a number we can expect to fall from the 4% of sales? Because it stands out more than even Specialty Chemicals for me. The second question on the China story. The big story was always about renovation against the new build. Presumably by default, renovation is now probably half of it because the new build is under pressure, just wondering where we are in that story, particularly with Eastern Seaboard. Thank you. Okay, first the CapEx. We indeed had very positive investments in China. The ones I mentioned. We have the CapEx in U.K. as well. I don't expect big changes in our CapEx going forward for the next period. We still have growth in some of the regions. The other hand, these, of course, big investments will give us the opportunity to grow in these markets considerably. That's also very clear also in China. Talking about China, normally we don't go into specific strategies per country, we did indeed in China implemented a separate commercial structure to work on the project business about a year ago. Because we see that the project business is a different business than the maintenance or retail business in a country like China. You can see for yourself the example I showed with the floor painting. These are huge projects and they need a specific tailor-made key marketing, key account approach with very strict and professional logistics as well to deliver the products in time. Which is a bit more linked with the business of Conrad, who's doing these kind of projects all the time. We've implemented that to improve our position in the Chinese project market. Indeed, it's a volatile business at this moment in time, but still a very big potential for AkzoNobel as well. Yes. Thanks a lot. Eugenia Moto from Berenberg. I just had one question about the strategy. When you were talking about market share, you were talking about regions, and Europe is quite a diverse region. I was wondering, what are the downside of actually downsizing your business in Europe and exiting markets such as Germany that we discussed, but also Italy, Spain, and maybe Turkey, where you have subscale market share and the markets are extremely fragmented. What's the importance of being present in these markets and what kind of leverage you can get from it? Because you exited U.S., North America rather, but you haven't moved. You downsized your production and distribution space, but in terms of the sales presence, you didn't change much in Europe. Why is that? Thank you. Indeed. The whole strategy in Europe, the Fix Europe strategy, was based on the change of the operating model, but not to downsize our operations in, let's say, marketing and sales effort at all. What we did do is to make use of the scale in Europe. Try to use our scale and especially in the back-office functions, to be able indeed to stay full, have full presence in marketing and sales. We didn't cut at all in sales presence in all markets in Europe. We're in 34 markets in Europe, and the whole model is just based on lower complexity, lower cost, but having the full presence of marketing and sales there. Also using, like I presented today, the global initiatives, the scale that we have globally, the marketing scale that we have globally, but also the innovation scale that we have to win in Europe. A good example for me personally is the Polish example that I gave you with the EasyCare example. A global initiative that can be deployed very fast and win locally. And just- One more question and then we have to. Sorry, can I just clarify That's the last question, yes. Sorry, can I just clarify? The target is to be number 1 or number 2 in each market in Europe where you are present? If you are number 3 or number 4, I assume it will continue to negatively affect your asset turns and your profitability in certain countries. Would you ever consider exiting certain countries in Europe, indeco? Well, I cannot, of course, look into the long future what we'll do in all the markets as we are. Today, we are happy with the scale we have in Europe. With our new operating model, we are in place to make use of that scale and be efficient and improve our positions locally. We looked at that, of course, in introducing that new operating model, looking in detail to all the markets and make specific plans, like I said, to win locally. Today, we are happy with the positions we have. Okay? Thank you very much. I think it's time now for a short break. Every day, more and more people and goods need to travel around the world, which means the global demand for safe and reliable transport has never been higher. We rely on modern transportation hubs like airports, bus terminals, and train stations to connect our cities and keep modern life moving. They help cities to function properly and ensure that people and cargo can get around quickly and efficiently. This places big demands on all areas of transport, ranging from daily wear and tear to the environmental challenges such as weathering and corrosion. AkzoNobel's high-performance coatings products are designed to protect and enhance vehicles, buildings, and transport systems all over the world. We keep airports in Hong Kong, London, and Brazil safer and more comfortable for longer, and we protect trains and metro systems in Dubai and Shanghai. As our cities keep growing, we're helping to make transport more sustainable, better looking, and more affordable for everyone. At AkzoNobel, we're committed to meeting the growing demands of a fast-changing world and making our cities better, more human places to live. "I'm sorry. Mistakes are part of being young. I'm sorry. So sorry. Dulux EasyClean. Color your home live with the Dulux Visualizer, the app that lets you picture it before you paint it. Every day, more and more people and goods need to travel around the world, which means the global demand for safe and reliable transport has never been higher. We rely on modern transportation hubs like airports, bus terminals, and train stations to connect our cities and keep modern life moving. They help cities to function properly and ensure that people and cargo can get around quickly and efficiently. This places big demands on all areas of transport, ranging from daily wear and tear to the environmental challenges such as weathering and corrosion. AkzoNobel's high-performance coatings products are designed to protect and enhance vehicles, buildings, and transport systems all over the world. We keep airports in Hong Kong, London, and Brazil safer and more comfortable for longer, and we protect trains and metro systems in Dubai and Shanghai. As our cities keep growing, we are helping to make transport more sustainable, better looking, and more affordable for everyone. At AkzoNobel, we are committed to meeting the growing demands of a fast-changing world and making our cities better, more human places to live. "I'm sorry. Mistakes are part of being young. I'm sorry. So sorry. Dulux EasyClean. Color your home live with the Dulux Visualizer. The app that lets you picture it before you paint it. Every day, more and more people and goods need to travel around the world, which means the global demand for safe and reliable transport has never been higher. We rely on modern transportation hubs like airports, bus terminals and train stations to connect our cities and keep modern life moving. They help cities to function properly and ensure that people and cargo can get around quickly and efficiently. This places big demands on all areas of transport, ranging from daily wear and tear to the environmental challenges such as weathering and corrosion. AkzoNobel's high performance coatings products are designed to protect and enhance vehicles, buildings and transport systems all over the world. We keep airports in Hong Kong, London and Brazil safer and more comfortable for longer. We protect trains and metro systems in Dubai and Shanghai. As our cities keep growing, we're helping to make transport more sustainable, better looking and more affordable for everyone. At AkzoNobel, we're committed to meeting the growing demands of a fast changing world and making our cities better, more human places to live. [Foreign language] Xí xóa thật dễ dàng. Sungulux Dulux EasyClean - Ngôi nhà chùi vượt bậc mới cho con tự do phát triển. Color your home live with the Dulux Visualizer. The app that lets you picture it before you paint it. Every day, more and more people and goods need to travel around the world, which means the global demand for safe and reliable transport has never been higher. We rely on modern transportation hubs like airports, bus terminals and train stations to connect our cities and keep modern life moving. They help cities to function properly and ensure that people and cargo can get around quickly and efficiently. This places big demands on all areas of transport, ranging from daily wear and tear to the environmental challenges such as weathering and corrosion. AkzoNobel's high performance coatings products are designed to protect and enhance vehicles, buildings and transport systems all over the world. We keep airports in Hong Kong, London and Brazil safer and more comfortable for longer. We protect trains and metro systems in Dubai and Shanghai. As our cities keep growing, we're helping to make transport more sustainable, better looking and more affordable for everyone. At AkzoNobel, we're committed to meeting the growing demands of a fast changing world and making our cities better, more human places to live. [Foreign language] Xí xóa thật dễ dàng. Sungulux Dulux EasyClean - Ngôi nhà chùi vượt bậc mới cho con tự do phát triển. Color your home live with the Dulux Visualizer. The app that lets you picture it before you paint it. Every day, more and more people and goods need to travel around the world, which means the global demand for safe and reliable transport has never been higher. We rely on modern transportation hubs like airports, bus terminals and train stations to connect our cities and keep modern life moving. They help cities to function properly and ensure that people and cargo can get around quickly and efficiently. This places big demands on all areas of transport, ranging from daily wear and tear to the environmental challenges such as weathering and corrosion. AkzoNobel's high performance coatings products are designed to protect and enhance vehicles, buildings and transport systems all over the world. We keep airports in Hong Kong, London and Brazil safer and more comfortable for longer. We protect trains and metro systems in Dubai and Shanghai. As our cities keep growing, we're helping to make transport more sustainable, better looking and more affordable for everyone. At AkzoNobel, we're committed to meeting the growing demands of a fast-changing world and making our cities better, more human places to live. [Foreign language] Sung Dulux EasyClean lâu chùi vượt bậc mới cho con tự do phát triển. Color your home live with the Dulux Visualizer, the app that lets you picture it before you paint it. Every day, more and more people and goods need to travel around the world, which means the global demand for safe and reliable transport has never been higher. We rely on modern transportation hubs like airports, bus terminals and train stations to connect our cities and keep modern life moving. They help cities to function properly and ensure that people and cargo can get around quickly and efficiently. This places big demands on all areas of transport, ranging from daily wear and tear to the environmental challenges such as weathering and corrosion. AkzoNobel's high performance coatings products are designed to protect and enhance vehicles, buildings and transport systems all over the world. We keep airports in Hong Kong, London and Brazil safer and more comfortable for longer. We protect trains and metro systems in Dubai and Shanghai. As our cities keep growing, we're helping to make transport more sustainable, better looking and more affordable for everyone. At Akzo Nobel, we're committed to meeting the growing demands of a fast-changing world and making our cities better, more human places to live. Xí xóa thật dễ dàng. Sung Dulux Dulux EasyClean lâu chùi vượt bậc mới cho con tự do phát triển. Color your home live with the Dulux Visualizer, the app that lets you picture it before you paint it. Every day, more and more people and goods need to travel around the world, which means the global demand for safe and reliable transport has never been higher. We rely on modern transportation hubs like airports, bus terminals and train stations to connect our cities and keep modern life moving. They help cities to function properly and ensure that people and cargo can get around quickly and efficiently. This places big demands on all areas of transport, ranging from daily wear and tear to the environmental challenges such as weathering and corrosion. Akzo Nobel's high-performance coatings products are designed to protect and enhance vehicles, buildings, and transport systems all over the world. We keep airports in Hong Kong, London, and Brazil safer and more comfortable for longer. We protect trains and metro systems in Dubai and Shanghai. As our cities keep growing, we're helping to make transport more sustainable, better looking, and more affordable for everyone. At AkzoNobel, we're committed to meeting the growing demands of a fast-changing world and making our cities better, more human places to live. I'm sorry. Mistakes are part of being young. I'm sorry. Sorry. Good afternoon. I am Marten Booisma, and it is with great pleasure to be with you today and talk about the major transformation that has taken place towards a high-performance culture. Since my start two years ago, I've been visiting the business and meeting people around the globe. Each time I come back with a lot of energy because our people are proud of AkzoNobel. They are proud of our products and our brands. Even in the difficult circumstances and a lot of change that has taken place, they stay committed, and they stay engaged. That makes us a very great company to work for. Over the last three years, major change, major transformation has taken place that impacted all employees in all our businesses and functions. A company of the size and complexity of AkzoNobel take multiple years to transform. We can see many proof points that we are going into the right direction. We are a safer place to work. We are seeing incidents and year in 2014, we were at 1.8 total reportable injury rates. Our vision is to have zero incidents because we believe that caring for each other is the way to win together and achieve leading performance. Sorry. We have simplified the organization by taking out layers and increasing span of controls. Conrad explained earlier about his new organization in Performance Coatings, where we have gone from four business units, 12 sub-business units to seven strategic market units. Ruud, last year at the Capital Markets Day, talked about the Central European model. This year he also explained the model in Europe, which is a new way of working in Deco. In the new organizational setup, the customer-facing side of the business is fully focused, and I repeat, fully focused on sales, marketing, and innovation to grow the business. On the functional side of the business, we focus on harmonization, standardization, global processes and systems, and service delivery. By putting the functions in Global Business Services, we win scale. Together with the exchange of best practices, we will achieve further efficiency improvements. Commercial excellence is a key initiative to drive organic growth. By training and developing our salespeople and technical sales rep, we build commercial capabilities in the organization. Continuous improvement is also taking place in our factories. My colleague, David Allen, will tell how he is building capabilities to strengthen the foundation of operational excellence. The question you might ask is: How are we making this happen? We do this by making continuous improvement the core capability of our people. I see many proof points. Take, for example, the progress we have made on productivity, sustainability, safety, and engagement. We reinforced the role of our leaders to inspire our people. Together, and in line with our core principles and values, we are driving a high-performance culture where everyone has clear roles, responsibilities, and accountability. By changing leadership, you will change the culture. We needed leaders who represent the new direction of the company, leaders who drive and shape an inclusive high-performance culture. Let me give you a few facts. Facts that show that we have made significant change in leadership and therefore are changing the culture. Six out of seven Executive Committee members changed in the last seven years. In 2014, 50% of leadership, top 200 leadership changed, of which more than 25% left the company. We continue to evaluate our leaders on performance and behaviors. We also promoted people from within, especially for commercial positions, as we believe the know-how, expertise, and experience from within is a key factor for these roles and in line with our value customer-focused. As I said, strong diverse teams perform better. That's why diversity and inclusion is one of our key building blocks in creating a high-performance culture. We believe our people should reflect the societies where we operate. We need to truly represent the many and various cultures of the markets we serve. Over the last year, we have placed stronger focus on inclusion as an important element of building winning teams. Although we make good progress, we can do a lot more. Again, let me give you some facts. 24% of our total workforce is female. 18% of our executives are female, 50% of the Board of Management. With our Women in Leadership training program, we give concrete follow-up on our ambition to have at least 20% female executives. 48% of our total workforce is from Asia-Pacific, Latin America, and emerging Europe. 16% of the executives come from these regions. Again, we want this to be in higher number. Initiatives such as the Fast Track Management Program is a good example of how we want to achieve this. More than 90% of the participants come from these regions. In succession planning and talent management, we focus on candidates from Asia-Pacific, Latin America, and emerging Europe, as well as on diversity candidates. I believe that people make an organization, and by energizing the whole organization from the bottom to the top around a simple and clear set of core principles and values, we will ensure that everyone is playing a role to meet our strategic goals in delivering leading performance. Safety, integrity, and sustainability are our core principles and what we stand for as a company. It's a condition of doing business and working for AkzoNobel. The values and behaviors is how we behave and work together. We believe that the way we work and interact with our customers and amongst ourselves drives our performance and results. We have embedded the values deeply in our organization. They are part of the yearly appraisals. They are part of the talent assessment centers, and they are included in the leadership competencies which we use to develop our leaders. We see evidence that the people are embracing our values and core principles. We asked 4,200 people in the company, the survey showed that 96% of our people know the values, and the vast majority see added value for their own job and helping them to perform better. They also see leadership role-modeling the values and behaviors. In summary, after only two years of implementing the values, we see strong indications that they are becoming part of our culture. Seeing people living them is both encouraging and essential to our future success. It is a fact, better engagement leads to better performance, lead to better business results of the company. We are very pleased to see that we are making progress on engagement. Actually, our progress since 2010 is in the top quartile compared to the best companies of the Gallup survey. Gallup conducts the engagement survey on our behalf, which is also a good opportunity to benchmark. Progressing in a period of immense transition is something to be proud of. Engagement is not something taken for granted. It's not a given. It's a great contribution from everybody in the company. Feedback and trust, supported by clear values and behaviors, are key components to making this possible. While we are pleased to see our improvements over the last years, we recognize that we still have some way to go to achieve top engagement levels. As I said earlier, I see evidence that culture change is taking place. Our customers give positive feedback on the quality of our products, innovations, and the way how we cooperate in the supply chain. They say on a personal level, AkzoNobel's customer intimacy is very good. They recognize their customers' challenges. We have increased transparency in many areas to deliver on our commitments. Dashboards, key performance indicators, and having clear roles and responsibilities are becoming the norm. All our top leaders around the world are trained to give feedback to drive continuous improvement. We doubled the cross-business area moves to 13% in 2015. Coming from a very siloed and decentralized world, this is a major step forward and only a beginning of winning together. In HR, we improved the human capital rating in the Dow Jones Sustainability Index as a proof point for passion for excellence. What are our next steps? As I said earlier, this is not a quick fix. For us, it's the story of embedding a culture of continuous improvement. We will build on what we have achieved in the last years and aim to get better every day. Like Ton said, Global Business Services operating model is evolving. Functions and regions are at different stages of development, but significant steps have already been taken. The next level will be kicking off in January when we launch the new Global Business Services organization. We will focus on building our people's capability, especially for our leaders and people managers. By doing this, we expect an acceleration of our change journey towards leading performance. We will continue to build and develop commercial excellence capabilities to drive organic growth. While we are pleased to see the improvement in the area of engagement in diversity and inclusion, we recognize that we still have some way to go to achieve leading engagement and leading team performance levels. That's why engagement and high-performing diverse teams remain key to us to deliver on our ambitions and make Akzo Nobel a great place to work. Thank you for your attention, and I'm open for questions. I must have been very clear. If there are no questions, then I'm happy to introduce my colleague, David Allen. Dave and I started at the same day two years ago, and Dave has done a terrific job in making our operations better every day. Dave? Thanks, Martin, and good afternoon, everyone. Again, my name is Dave Allen, and as Martin mentioned, I joined Akzo Nobel two years ago. When I first met Ton, I was really inspired by his drive for operational excellence and really wanting to build this culture of continuous improvement and take the company to the next level of performance. This is very aligned with my own passion and how I've operated in the past in the variety of previous roles that I had throughout my career. Today, this is what our team is doing, building and embedding a continuous improvement culture across the company. In the previous conversations that you've heard today, you've heard my colleagues talk about the importance of an integrated supply chain in driving sustainable value for the company. Today, I'd like to share with you our story in transforming the integrated supply chain function in delivering leading performance. Let me talk about who are we. Well, first, we are the largest function within Akzo Nobel, with well over 22,000 colleagues across our three business functions. Our function is the backbone of the company. We are responsible for all activities and work processes, from purchasing of raw materials, manufacturing of our products from over 200 manufacturing sites, and finally, the delivery of finished goods at our customers on time and in full. In order for us to continuously meet our customer expectations and remain competitive, it is absolutely crucial that our supply chain focuses on cost efficiency while also be accompanied by a high degree of agility and flexibility. Similar to every other function within the company, integrated supply chain has an essential role to play in achieving our best-in-class sustainability targets. Ton already mentioned earlier the fact that we are number one in the Dow Jones Sustainability Index within the material sectors groups for the fourth consecutive year. A significant contributor is how we manage and control our raw materials, energy usage, and the occupational health and safety within our facilities. Today, we also have defined our plans and targets in these specific areas in order to drive continuous improvement. Two years ago, we set out and conducted extensive internal and external benchmarking of our operational results to really define what are those gaps and required actions that our function needs to deliver leading performance. Through this process, we identified our key strategic imperatives to achieve our operational excellence strategy, which are listed here. Two that I like to highlight that are really critical to our success are, one, the need to build a performance-based continuous improvement culture across all levels of the company, and two, to really create sustainable value through the deployment of standardized best-in-class supply chain processes. I'll talk a little bit more about this in the next couple of minutes. Also key to our strategy was establishing best-in-class metrics in the key areas of safety, service, cost, capital, and employee engagement. Finally, after extensive review with our key business leaders, our functional excellence strategy was developed encompassing these strategic imperatives in world-class metrics, which subsequently was approved by the executive committee in March of 2014. Realizing our vision is a long-term journey, which we have defined in a seven-year functional excellence roadmap as shown here, with clear performance levels that we want to achieve within specific milestones. We are currently in the first phase of the transformation to achieve the level of what we call internal best performance. This really entails building that continuous improvement foundation by standardizing the way we work across the entire supply chain to eliminate that significant variation that we see today that prevents us from operating at peak performance each and every day. The exciting news for us is that we're already beginning to see financial benefits in the first phase, of which I'll share some examples later on. Last year, we also implemented a new organizational model with many internal and external CI experts across the business to begin designing and deploying our continuous improvement framework, which we call ALPS. ALPS stands for AkzoNobel Leading Performance System. I'll provide you with some more details on this in the next couple of slides. In the second phase in our roadmap is to achieve what we call industry best performance. We will accomplish this by continuously optimizing and improving our ALPS framework while also investing both in the state-of-the-art process and automation technologies and capabilities at our sites through our what we call our Advanced Manufacturing Excellence program. Finally, in the third phase in our roadmap is to achieve what we call world-class performance as we truly integrate our supply chain and production facilities around the world. Let me tell you a little bit about ALPS. As I indicated earlier, ALPS is the name of our continuous improvement transformation within the integrated supply chain function. This is a company-wide framework which fundamentally defines how we source, plan, make, and deliver products to our customer. ALPS is a holistic approach of continuous improvement, which consists of these four strategic elements listed here, which are critical success factors in our transformation as well to drive sustainable performance. As you can see from the top of the slide, we started designing and deploying these work processes based on industry best practices that define how we operate, maintain, and improve our facilities in a standardized and integrated approach. We also developed a set of clear metrics and goals and, of course, cascaded all those down to the factory floor. This now provides us with a platform to really drive improvements at all levels of the organization, thereby allowing for greater internal benchmarking and sharing of best practices. We focus on enablers to develop the technical capabilities of our people, utilizing leading-edge principles, methods, and tools to continuously improve our processes. We've implemented IT enabler systems that support the automation of our work processes, but also the work that people perform. We're aligning our organizational structure with the work processes to create clear roles and responsibilities. We've streamlined our organization, which now allows for decision-making to be performed not only faster but at the appropriate level of the organization to drive improvement. We're integrating our company values and critical organizational leadership behaviors to create this performance-based culture. This will define how we manage our business going forward. Finally, we are using change management techniques to ensure ALPS is firmly embedded into the fabric of our culture and organization. So let me take a minute to explain a little about the deployment model, which is really the heart of our approach of implementing the ALPS framework. It begins with our corporate center of excellence organization, which designs the ALPS blueprint based on best-in-class models and practices from industry. Deployment is the responsibility of each of the business areas. They prioritize the list of sites for implementation based on size, improvement opportunities, criticality, and readiness, just to name a few. The ALPS deployment teams work with our sites in utilizing a very rigorous implementation process, as you can see at the bottom of the slide. This includes conducting boot camps to help the sites understand what ALPS is all about and what the transformation end state looks like. This includes also performing due diligence assessments at our sites to define how large the improvement opportunity is versus current practice and, of course, to set target objectives for improvement. It's about implementing the ALPS foundational and primary and secondary processes, which really entail about six months of hands-on training and capability building with all our site employees. We utilize a governance process consisting of members from our business area leadership teams to monitor the progress of critical milestones, but also ensure that the improvement's being achieved to the assessment targets that have been established. Finally, after go-live, the sites transition from the deployment stage to the continuous improvement stage. This includes annual assessments and maturity audits to continually monitor the health and effectiveness of our processes in delivering and sustaining the annual improvement goals and targets that we've established. You can imagine that it does literally take two to three years to firmly embed and hardware ALPS into the fabric of the culture in organization. The good news is that it doesn't take long for results to be achieved. In fact, we're already beginning to see benefits at our initial sites shortly after go-live, which I'll share within our three business areas next. As I indicated earlier, we are now a little bit over a year and a half into our journey and are already beginning to see some tremendously exciting results. Let me start with the decorative paint business. This is a batch operation where we tend to make stock and use warehouses to distribute to retail. Ruud mentioned earlier the importance of driving operational excellence within the supply chain. We tend to see a huge spike in volume in the spring and summer months. Historically, this spike has significant amount of downtime on our filling lines, resulting in additional work and shifts to produce paint. With the implementation of ALPS at this one European site, downtime dropped dramatically by over 79%. This is because every day the shop views their production schedule, and if they don't meet their target, they perform root cause problem-solving. When they realized in this case that machine downtime was their number 1 issue in preventing them in meeting their production targets, changes were made to their preventive maintenance schedule, which, on course, reduced equipment failures, which drives improved uptime. In turn, this also impacted the time they need to produce a batch of paint. As you can see on the right side of the chart, by reducing machine downtime, we also were able to reduce batch production time by 11%. Even better, you can see a decrease in the variation and seeing today a much more stable operation. As we continue to roll out ALPS at our sites, we will begin to see much more of these benefits going forward. Here is another example of results achieved within our Performance Coatings business. Performance Coatings is a batch operation where we frequently deliver directly to our customer. Our key metric here is on time in full. As the customer, you want the entire order and you want it on time. Conrad talked specifically today about how customer satisfaction in OTIF is a critical enabler for driving growth. Before we deployed ALPS at this one U.S. site at the beginning of the year, they had been struggling with meeting customer service expectations. The implementation of a standard sales and operation planning process created better clarity on the demands of the customer, which could then be translated to the factory floor. In just a few short months, they went from 60%-95% on time in full, with their performance continuing to improve every month. With the implementation of ALPS planning processes, we will continue to see this level of improvement across all our sites. Finally, this is an example within our Specialty Chemicals business, which has a slightly different supply chain model. In many situations, they are a continuous operation with plants located adjacent to the customer to transfer product directly into their facilities. Werner indicated earlier today that cost productivity is a key enabler for achieving their business strategy. Again, this is an example of one of our European sites, which was actually experiencing negative productivity at the beginning of the year. The ALPS team spent several months at the sites to train the new sites on the new make processes. The site was really able to solve some long-term quality issues by improving yields and reducing material losses. As a result, cost productivity improved dramatically and is delivering solid financial benefits well over EUR 700,000. You can see that they still have a way to hit their goal, but we are fully confident that indeed they will achieve their target. The success of our integrated supply chain transformation is not only about cost reduction, service, and quality improvement. To truly embed and drive a continuous improvement culture, you need all our colleagues to be engaged and involved. To show you how building a continuous improvement culture can have a huge cultural impact, I'd like to share the results of one of our very first sites through the ALPS journey. This was a plant in Europe. They were working in a rather very challenging environment without really an engaging continuous improvement culture. They started their ALPS journey with an employee engagement score of 3.74 out of a possible five. Through the works of ALPS and the site leadership teams, the employees were trained in the new processes and learned basic continuous improvement and root cause analysis techniques. Their performance increased dramatically, of course, convincing everyone that the changes they were making were really making a big difference. A year after the launch of ALPS, the annual engagement survey showed an impressive 15% increase, one of the largest increases we had in the entire company. Their total score now is an engagement level of 4.31. When you visit the site today, the employees are truly proud and will show you the work they are doing as well as the improvements they've made. In summary, we are off to a strong start in our integrated supply chain transformation with our new strategy, operating model, and leadership team now fully in place. We are already beginning to see visible improvement and benefits from our ALPS deployments. We expect that to continue as we ramp up in the coming year and gain even more momentum at all our sites. Finally, we are fully confident that our operational excellence strategy will deliver leading performance and sustainable value, not only within the integrated supply chain function, but for the entire company. Thank you. Now I'll be glad to answer any questions. Thank you. Tim Jones, Deutsche Bank. Two questions, if I may. Can you give us a rough idea of the EUR savings from moving Akzo to internal best performance? That's based on the one, three-year. Then also the EUR savings if you go from internal best performance to industry best performance. That's the first question. The second question is, when you look at Akzo against its global peers, where do you think the biggest deficit in its performance is at the moment based on your five world-class metrics, that's safety, service, cost, capital, and people? Thank you. Well, to answer your first question, what I would tell you is that our ALPS framework is really a key enabler for us to drive continuous improvement. Again, what it does is it allows our BAs that you heard today achieve their performance level and financial objectives that they're trying to achieve. As far as the second question that you answer in terms of where our opportunities are relative to our peer groups. Again, I would say that for us, we feel that there are opportunities across all dimensions of our business, quality, service, productivity, and of course, that's what we're really going to be focusing on, and this is really what drives for us as a company. Really for us, ALPS is our competitive advantage for our company. Yeah. Thank you very much. I've got a couple of questions. Who designed ALPS? Was it you? Was it a consultancy? Second, when you say you identified industry best practices, is that employees that weren't hurt before, or was it your customers telling you, or did you have to hire people from the competition? Just on the numbers, the EUR 700,000 in the Specialty Chemicals plant, is that the annualized benefit or just what happened during the second quarter, the step up? Okay. Well, let me try to answer all three questions. First question is, who designed ALPS? We did. What we have done is, again, within our company, there are a lot of best practices that we wanted to share across the business. We align those with industry best practices that we, of course, benchmark across the world. With our organization that I mentioned, the Center of Excellence team, we have designed our ALPS processes from that. That was all done internally. We did not use any external consultants in design or ALPS. It's very customized to our business. It's aligned to drive the business strategies that you mentioned, and of course, each of the business areas has a specific focus that is different. For example, in case of Werner, Specialty Chemicals, it's all about driving productivity. In case of Performance Coatings, it's about service improvement, those kind of things. We customize ALPS to drive the improvement based on the business requirements. Second question was the euro impact. What you see here is this is the euro impact year-to-date from that effort of improving and reducing mature losses at that one site. the knowledge about best practices was there in the company or did you have to? Well. The competitors in? We do extensive benchmarking across the world. We look at best practices, whether it's within our peer group, across the industry. An example would be sales and operation planning, right? We typically go out and we look at companies that do that, and obviously, we bring those kind of best practices into within Akzo Nobel. The answer is a lot of that is through our own knowledge of going out and looking at best practices and of course, bringing those in and sometimes obviously customizing those to the needs that we have to drive the specific business strategies that our business areas have laid out. Okay? Thanks a lot. Eugenia Moto from Berenberg again. I used to do Six Sigma for the chemical companies, and it does look a lot like that. I assume it's just based on the statistical analysis, so it will look a lot like that. Our issue with my company, some chemical, was that the fact how to actually retain the cost savings because we all had very clear cost-cutting targets, and during the first year, we were able to achieve them. Then actually the production slipped back into the old tracks and they kind of were erased. How long do you actually measure the efficiency? The second question, when you are looking at productivity improvements, there is only so much you can do with improving eliminating waste, et cetera. If utilization rate is not high enough, it will affect your productivity. When you look at your asset base, are you satisfied now with your footprint? Do you use the same program for the global asset base and not only for local plants? How does it work on a global scale? Thank you. Okay. Let me start with the first one. You mentioned, again, that your experience has been about implementing tools like Six Sigma and Lean. Obviously, for us, we use those same kind of methodologies. Again, what I would say is that Lean Six Sigma is a method, a tool to apply to a problem to solve. You use different tools to be able to solve different types of problems, okay? The beauty of ALPS is that it drives that sustainable performance. As you mentioned, what you tend to see over time is performance decay because you're not continuously improving that asset, and you're not necessarily making sure that those improvements are built into your process, okay? We measure performance every day, and we make sure that that performance stays at that peak performance. When we find an issue, we do what we call problem-solving, and of course, that continuous plan, do, check, act is what really drives that sustainability, okay? In terms of you talk about the asset base. For us, what's important as we drive improvement in our assets is that we continue to find ways to generate free capacity. That is the best productivity that you can deliver to a business. Of course, for us, driving free capacity is how do we continue to eliminate the defects that are reducing downtime because of mechanical issues or process issues. A lot of ALPS is focused on generating free capacity, as Werner said, to really drive that volume leverage, which is, for us, a key competitive advantage. Thank you. It's Paul Walsh with Stanley again. Can you help me understand the concept of deflation as it relates to your business? We've seen more than a halving in the oil price, or at least a halving in the oil price over the last 12 months. It's not obvious to me that the company has seen significant tailwind from that. So from your unique position, can you help us understand why we haven't seen that? Is it timing differences? Is oil the wrong proxy? Or is it still to come? Thank you. I think maybe that would be a better question to ask our business leaders. Today, they talked a lot about deflation. I think for that particular question, I would suggest that we include that as part of the roundtable and have one of our business leaders answer that one. I think that's it. Again, thank you. I'd like to introduce my distinguished colleague, Maëlys Castella, who has been a critical support for us. As I mentioned to you earlier, one of the things that we do with relative our processes, we automate and digitize our processes and metrics, and of course, her organization is a key supporter of that. So again, thank you, and I now introduce Maëlys. Thank you, David. Good afternoon, everybody. I'm very pleased to be with you this afternoon for my first Capital Market Day with Akzo Nobel as CFO. I joined the company one year ago, and when I'm traveling around the world, I've been very impressed about the amount of change that is going on in the company. The change are not only visible at the top management, but they're also visible down the organization in our offices, in our factory, where our people every day are improving the way they work, improving our processes, putting in place new organization, simplifying, and there is really a lot that is going on there. I was recently in Sweden and I visited one of our large complex of chemical. Usually when I do those tour around, people always try to show me at some point one of their unit that is not going that well to try to ensure they will get some CapEx allocation when the thing will come on my desk. But this time it was different. I had a local team that was really proud to explain to me how much they have been able to improve the productivity of their units, avoiding a large CapEx. So that's for me a real example of the change that is going on and this new culture of performance, and as described earlier on by Martin, by the strong engagement of our people. I will start with an overview of our finance priority and the major achievement we have realized in the past three years. Our focus remain on performance improvement. It is clearly visible on our results. The Q3 results we have published last week is another proof point. We are continuing to pay a close attention to our cost. David Allen just explained you through Alf how much this new culture is deployed within all the BA. Our BA at Konrad, Ruud, and Werner are also showing you all the transformation that has been taking place to reduce our cost. We are putting a lot of emphasis also on internal control, which is for me very important to keep our house in order and also manage actively our risk. Cash is, of course, one of our top priority. I'm very pleased to show you that we are on track to be cash positive this year. We have restored very strong balance sheets, paying down our debt, and also addressing our pension liability. Our capital allocation are aimed at supporting our strategy of growth and of increased shareholder return. Operating performance is clearly improving. You have here our financial results, which show that our operating income and our earning per share have increased regularly each year since 2012, despite a challenging environment. In Q3, we have increased further. Our operating income was up 30% and our earning per share up 35%. This has been mainly driven by four levers. First, our improvement programs in all the business areas and all the functions. Secondly, our portfolio optimization with the pruning of non-strategic asset. Third, our lower operating cost. Fourth, our lower restructuring expenses that went down from EUR 350 million in 2013 to around EUR 100 million this year, as we're moving to this new phase of continuous improvement. We are on track to deliver our 2015 targets of return on sale of 9% and return on investment of 14%. Both return on sale and return on investment have increased year-on-year since 2012. This improvement has accelerated in 2015. The ROS increased from 5.9% to 6.9% in 2014. Year to date, Q3, the ROS was 10.9%, which is 250 basis point up from the same period last year. The return on investment also improved significantly, steadily from 8.9% in 2012 to 10% in 2014. Year to date, Q3, we have reached 12.5%, which is 200 basis points above the same period last year. You may think there is still a gap between the 12.5% and the 14%. I want to recall you that the ROI is computed on the 12 months average. Therefore, year to date, we still have the impact of Q4 last year, which includes large negative incidental and also high level of restructuring. That's why we remain confident that we are on track to reach our 14% this year. 2014 was around 10%, which is leading performance versus our peer. The working capital variation are determined by the seasonality of the business, in particular, our decorative paint. In average, through the cycle, we aim to operate during the year between 10%-12%. We are currently facing some temporary inventory buildup in our plants in Performance Coatings, as Konrad explained to you, because it's closing some site. To ensure we continue to deliver properly our customer, we had to do those inventory build-up, which impacted our working capital. As Konrad has explained, those closures should be finished by mid-2016, therefore, we think we'll go back to a more regular working capital, and we'll continue our discipline to manage it forward. We also have a very disciplined approach towards capital expenditure. Our capital expenditure as percentage of sales has reduced from a peak of 5.4% in 2012 to around 4% end of last year, and we expect it to remain around this level for the foreseeable future. Year-to-date in Q3, we were at 3.7%, and we're aiming at around 4% for the year. Around half of this capital expenditure is dedicated to Specialty Chemicals business, which is more capital-intensive by nature. As highlighted earlier on by Werner, after payment of the CapEx, chemical is still a very strong cash contributor to the group. We will build upon the significant investment made during the recent years, which provide the strong foundation for our growth and will continue to drive a strong discipline regarding both the evaluation of the project and also the way we implement them. Our prioritization on project are based on the cash return, cash generation, and also the return, but they have also to be in line with our strategy. Around 40%-50% of the project are investment in growth. The rest is dedicated to efficiency, safety, and maintenance. You see in this map some of the recent investment we have done supporting our growth strategy and our operational excellence. Our investment in Europe are focused mainly on operational excellence. For example, our chlorine plant in Frankfurt, which is part of our Industrial Chemicals business, where we invested in new production unit to comply with the new regulation on mercury-free and also take this opportunity to increase the efficiency. In China, we have invest significantly in the recent years, despite the fact we have mentioned that China is slowing down, we're thinking for the future. This is a key foundation for the growth as China remain a major market in chemical, as outlined by Werner, but also for other business in Deco and in Performance Coatings. We are currently building a new Decorative Paints factory in the west, as mentioned by Ruud, and this is to address the growth of this region, and that will bring also efficiency because we are currently shipping our product from our factory on the east side. We have also invested in South America, in our pulp industry, which is growing as it's mainly driven by exports, while the economic environment in Brazil is not that great. Moving to pensions, as you know, an important topic for the company. There has been continued progress in the de-risking of our defined benefit obligation. The vast majority of our pension obligation are related to two of U.K. pension fund, the ICI Pension Fund and the Courtaulds in the U.K. for more than 83% of our obligation. We have conducted in the recent year, major operation of de-risking through what we call buy-in. That means transferring the risk to insurance company, and we did it in 2014 and 2015 for a total amount of GBP 5.6 billion. We also conducted a buyout of some of our liability in the U.S. for $0.7 billion. We also had done some hedging. Overall, thanks to all this active management, we have now a total amount hedged on interest and inflation for about 80%. And on longevity risk, we are hedged up to 45% of our total obligation. This means the risks associated with our pension liability have been reduced significantly, and we will continue to manage them actively in the future. And we also have created, through those operations, more visibility for our cash flow. As you know, with the U.K. regulation, we have to fund the deficit through some cash top-up. You have here the total pension cash payment for the year to come of all the different defined benefit obligation. The main contributors are the two U.K. plans we just discussed. As you can see, the cash contribution will reduce in the medium term from EUR 350 million this year down to EUR 200 million. This takes into account the new valuation we have concluded in July with the ICI Pension Fund, where we have reduced the contribution and extended the timing of the contribution. The increase you can see between 2014 and 2015 are only due to the exchange rate valuation. The pound having strengthened against the euro. Through the extensive de-risking of liability that I just mentioned, we are now having a much more visible cash flow contribution for the future. Therefore, our pension still remains a big cash headwind because we have to pay those top-up on top of our regular contribution, which are around EUR 125 million for our defined benefit. Going forward, we first have lower risk, and secondly, this amount will decrease over time. So our free cash flow continues to improve as we have addressed each of the lines of our cash flow statement. The top line, the EBITDA, which is a contribution really from our e-business, is continuing to improve thanks to all the improvement programs we have conducted and the increase of profitability of each of our businesses. In Q3 2015, we continued to increase our EBITDA. Our EBITDA margin is now 14.7% versus 12.6% for the same period last year. In terms of interest expense, we'll also continue to reduce our contribution, and I will show you that this year, this will go down further. Our tax rate is roughly stable, around 29%, and our cash tax rate around 24%. And I've shown you that we'll maintain a strong discipline on our working capital and our CapEx. Moving forward, our pension contribution will continue to reduce. Therefore, our free cash flow will continue to improve over the year. In terms of dividend policy, our dividend policy remains stable to rising. During the fall last year, we have maintained our dividend stable as we were cash negative. We're pleased to have announced last week an increase of our interim dividend by 6%. I think this is a strong signal of the confidence in our strategy and on the fact that we will be cash positive this year. During this period, we also have been very actively managing our portfolio. We have divested some non-strategic assets to focus on our market leading position. In the Decorative Paints, as mentioned by Ruud, we have divested our North America business and also our building adhesive, and more recently, Werner has divested the paper chemical business, closed transaction in Q2 this year. During this period, we were focusing on improving our profitability, increasing our cash generation. Therefore, we really did not conduct any acquisition. Now, I think we have built a strong foundation, and as mentioned to Ton, we have earned the right to grow and the right to acquire. Therefore, going forward, we can consider some bolt-on acquisition, but we'll be very selective in our choice, making sure that we're focused on the market where we have the right position, and also being very selective on the cash return of those acquisition. We have the strength now in term of financial position to conduct some of these acquisition. As you can see, thanks to the divestment I have mentioned, we have paid down our debt, and our debt level was EUR 1.6 billion end of last year. For two years in a row, we had a net debt to EBITDA of around one. We also had reduced considerably our interest expenses as we repay very expensive bonds of more than 7%, and we have done recently some new issue at 1.75%, reducing our cost down to 3.6% last year, and year-to-date will be probably around 3%. Major improvement. We'll continue to maintain a strong balance sheet. S&P has just confirmed that we have a BBB+ rating and believe that we have some headroom to conduct some bolt-on acquisition within this rating. If we look at the net cash generation, as I mentioned in 2012 and 2013, we conduct major divestments, which contributed to the cash generation. If we exclude them, you could see that we were really negative during 2012 and 2013. Only last year we started to be almost neutral. Going forward, what I've shown you and the progress, we are confident that this year will be cash positive after the payment of our dividend. Now that we have restored this cash generation, how do we allocate our capital? We'll continue first to support the growth of the business, investing in innovation and in capital expenditure. We want to maintain a disciplined balance sheet. We'll continue proactively to manage our pension deficit. Our dividend, as I mentioned, will remain stable to rising. We can consider bolt-on acquisition, provided they are strategically aligned, and they're also value generating. In summary, I think I've shown you that we have built a strong financial foundation to move forwards to the new phase of our strategy of profitable growth and leading performance. We are on track to deliver our target 2015. We are building a new performance culture and discipline within the company. We have restored our cash generation capability. The pension are significantly de-risked. We have a solid balance sheet to invest in the growth. Therefore, we are very confident that we can go through this new phase with all the good ingredients. Thank you for your attention. Before we move to the Q&A session, I would like to hand over to Ton for the conclusion. Thank you very much, Maëlys, for the overview on the financial section. Leaves me to wrap up with four distinct slides. First one is the focus that we have going forward. From all of the colleagues, you've heard that we build a new foundation in each of the businesses and in the functions, we need to hardwire these new organizational models into our organization. A significant part of our energy is going to be invested there. As David showed you, we're also going to build further on the initial stages of building the continuous improvement culture, where we've also already seen some of the examples that he showed, of course, we have many more examples throughout the organization. We will continue to build our operational excellence skills further, therefore, we have presented performance ranges that are higher than the targets that you've seen from us for 2015. We will add on top of the continued building of operational excellence, organic growth, and innovation. Each of the business areas has hopefully shown you very clearly what they're doing on the commercial excellence side, on the innovation side, to make this happen with past examples and future intentions. As Maëlys mentioned, because of the strength, because of the fact that we are a different company than three and a half years ago, because of the improved cash flow that we've seen, we can certainly consider on top of the main focus that we will have on operational excellence and organic growth, we can consider doing value-added, value-generating bolt-on acquisitions as well. Maarten very clearly showed you what we've done on the culture, how we've been changing it, what the proof points that are there, how we will continue to move it forward. All of this shows you the next phase of the strategy that we launched in early 2013. All of these actions that you've heard, all of these drives going forward that you've been explained by all of my colleagues, have resulted in the following financial guidance that we've provided for the period 2016 to 2018. It is based on the fact that we've done all these actions and these preparations and these rebuildings of the foundation, it does include the actions that David has described, the organic growth actions that we perceive for ourselves to be able to deliver, that is all included as part of this financial guidance. The markets out there have not become easier. We've not had significant tailwinds at all in the last three and a half years, we certainly don't expect to receive much of it going forward. You've heard from many of the colleagues all the areas where we see, in some ways, reduced growth, in some areas, even contractions. That doesn't mean that everything is negative going out there. It does mean it's more volatile, we do see, of course, positive aspects as well in some of the markets that we operate in. In some of the segments, like aero, we do see that there are positive developments and continued strength. In the area of North America, still our largest revenue as a single country, we do see increasing strength for the two businesses, Performance Coatings and Specialty Chemicals, that are operating there. With the extraordinary measures that we see taken by central bankers and governments in Europe, we do expect a small recovery that will show increased strength going forward in Europe as well, but this is something that we believe is still a little way out. We have expressed concerns on 2016 because on the industrial GDP side, we have seen clear downturns in several of the countries. If we look at those markets, we do believe that in our relevant market segments, we do see a growth of 2%-3% over the period combined. In that environment, we do clearly aim to use the foundation that we've built to grow in line and faster than our relevant market segments going forward. Our definitions are clearly entirely comparable with the definitions that we've used in the past. We've tried to accommodate one of the requests that came from you and your colleagues to actually make sure that we look at the operational performances of the businesses that we have. Therefore, we've aligned ourselves with the wishes that are there. The actual financial guidance and the way this is defined is entirely comparable with the way the targets were defined for 2015. You've also seen how this financial guidance was built up. Similar to the targets of 2015, which were only targets at the company level, the financial guidance is only a guidance at the company level. In line with what we did in 2013, also today, we give you how these financial guidances for the company are being built up, because the businesses clearly have different capital intensities. They clearly have different performances relative to their peers. Therefore, we thought it'd be very useful for you to see the performance ranges that were the foundation for the company's financial guidance that we've included on the previous slide that I've shown you. Each of the business area managers has clearly explained how they aim to build on the foundations that they've built to grow in line or faster than their relevant market segments. Each of the business area managers has explained how they actually make their improvements on the operational side to actually lift the brackets of operation, even in excess to what they have as targets for 2015. That leads me to reiterate that AkzoNobel is a very strong investment case. A fantastic portfolio of businesses that is geographically and business-wise spread, which also has a built-in resilience for individual volatility and fluctuations in the different regions and the different businesses. Strong global brands in both our consumer side and our industrial markets, and a long-term growth potential in all of our end-user segments that we're operating in. Maybe a tough patch at this point in time, but if you look at these industries, if you look at AkzoNobel over a longer period of time, we're in truly attractive markets that do show long-term growth. We've got a clear track record of improving returns, certainly shown in the period of the last three and a half years. We've also shown improved cash flows, which have made us decide that our interim dividends have been lifted with 6% for the recent announcement that we made last week. With that history and with that track record that we've elaborated on today, we're firmly convinced as a team that we are a strong investment case as a company overall and as the individual businesses as well. Thank you very, very much for being with us during the course of this afternoon. To close today, I would like to ask all of my colleagues to join me on stage here for an overall session of questions, for which we've approximately reserved an additional half hour. Thank you. Thank you very much for joining, and the floor is open for questions, and I see many. Let's start there on the left. Thank you. Yep, thanks. Christian Faitz, a couple of questions. One for Maëlys. What for you in your definition is bolt-on in terms of size? Maybe sales/amount you would want to spend or EBITDA, something like that. Talking about acquisitions, one white spot you have in Performance Coatings is automotive OEM, as we know, as you mentioned. If there ever was a chance to get into that business, would you go for it? Would that make sense? I guess I know the answer because I've asked that many times in the past several years, and the answer is no, it doesn't fit. Can you elucidate why it wouldn't fit? Then staying in automotive refinish. Is my understanding correct that the automotive refinish business is very much tied to insurance policies and you basically doing business with big insurers like, I believe you have a big GEICO contract in the U.S. How long is that contract going on, and can you just highlight the business ins and outs? Thank you. I would suggest that Maëlys answers the first question. I will pick up on the second, and maybe Konrad can explain some of the vehicle refinish dynamics going forward. Yes. Is it working? Yes. Yes. For your question about bolt-on. Bolt-on for me is about more in the EUR 100 million level than EUR 1 billion. This is what I make a difference. Of course, I will hand over to Ton, but I would say today we don't precise any specific target. As I mentioned, it could be in any part of our business if it make strategic sense, bringing us either a new access to a technology or to a new market, adding also synergy and definitely yet to be value-creating. We will be very selective. As we mentioned, we're going to be cash generative. It doesn't mean that we're going to rush to make acquisition. We want to pick the good one. Thank you, Maëlys. When we look at the automotive OEM coatings business, this is not a business where, as an organization, I would advise to try and organically grow yourself into. You would talk about a significant move forward. To line up with what Maëlys has said, we've earned our right to grow. We've earned our right for bolt-on acquisitions. Those bolt-on acquisitions will be in the hundreds of millions EUR, not in the billions EUR. From that perspective, I guess it's a choice made that would be very clear in that particular business, if you want to take a significant position. The vehicle refinish business has been very successful, can be operated very successfully without that link on the automotive OEM, and Conrad, maybe you can elaborate on the insurance linkages that are in the business and are important. Sure. If you look at the vehicle refinishes business, if you remember the slide that I presented, we have a global number three, number four position. If you're a little more ambitious, you would say we have a shared global number three position. Vehicle refinishes business is determined by several stakeholders. There is a segment in vehicle refinishes that's very much tied to car dealerships. We do have approvals with all the major OEMs. We're actually very pleased that this year we added to that the technical approval, technology approval with Daimler. That's a big gain for us. If you look at car dealerships, the body shop is actually now a big part of their profitability. That is for us, an interesting segment where we have a good global coverage. There is the segment of the independent body shops. Here what you see is that the insurance companies play a role. What they do is they specify, actually, in their preferred dealer networks, a number of paint suppliers, that is very much based on performance. This is an area where we actually have been very successful. If you look at where is AkzoNobel successful in our vehicle refinishes business, it is very much in this segment of the independent dealerships, and that's very much a technology play. We're known in the industry for excellent color accuracy. Color accuracy is not only the match to the OEM color, but the moment that you have a car in the field, after a few years, the color actually changes. It is about matching that color in a very accurate way. We're leaders when it comes to digital. I showed this slide. I didn't have a lot of time to explain it, but our digital color measurements and then our retrieval of the right formula for the body shop, that's actually an area that is really bringing efficiency to the body shops and therefore also to the insurers. We actually feel that we're well positioned to this trend where insurers indeed play a growing importance in specifying to the people that have their car insurance with them, where they have to repair their car. Thank you. Another question. Hi. Thank you. It's Paul Walsh again from Morgan Stanley. Two questions, if I can. Ton, I just want to come back to you around the messaging for 2016, because I don't think it'd be wrong to come away with some of those messages around 2016 looking tougher than 2015. You guys all know where consensus expectations have pitched for 2016, and I'm just wondering if that's the right message to come away with. You alluded to some of the counterbalancing items in your wrap up, but just wondering if you really are trying to keep a lid on expectations or if we're sort of no change on that front. My second question to Maëlys, would you ever consider buybacks in the future as a use of surplus capital? Let me start with the first question. What we're trying to provide you is a balanced and realistic picture going forward. We've looked in detail at our various market segments. We've tried to give you our best estimate of what we think the compound aggregate growth rate will be over the next three years. What we do see is that visibility forward has reduced because of the increased volatility that we've seen in very specific market segments. The various business area managers have elaborated on some of these segments. They've shown that some of them have reduced growth rates, and some of them even have shown contraction in it. That is not the general picture across the board, but what is a general picture, that it's been harder to actually give a three-year outlook than it probably was even a year ago. From that perspective, we don't want you to walk away with a negative kind of outlook for 2016, but a realistic outlook that also admits that it is harder to look far into 2016, harder than it has been in the recent history. Maëlys. Yes. About buyback, I will first recall that we are aiming to be cash positive this year. When we reach that, the first priority of our cash allocation, as I mentioned, is really on the entrepreneurial business. It's growing our business through our CapEx and possibly bolt-on acquisition. Of course, we're also focusing on return on shareholder, and that's why we have announced the increase of our interim dividend. This is really our first priority. We could envisage if really all these Allocation have been fulfilled. Also other type of return that could include share buyback, but it's not a priority in the short term. Peter. Yeah. Peter Clark, Société Générale. Just on the restructuring guidance to sales, the 1% number you have, which I know is the long-term record, if you even go back to the 2000s. You've just been through this big hike of transformation. You're getting more efficient at taking out costs. You're going for continuous improvement. Is there not likely to be a phase that's below that? Then tied in with that question, obviously, if I look at the emerging markets, the big push there, putting the CapEx on the ground, and one would have thought there might be scope for some investment payback, better efficiency there, perhaps, if the restructuring to sales remains 1%. Allow me to move some of the emerging market thoughts to the business area managers. Your first question was a quick restructuring part. Yes. What we've guided in the recent years has been something as a, call it, general maintenance charge that a company of our magnitude has, which is around 1% of sales. Now that we're actually moving more towards a continuous improvement level of performance going forward, we actually believe that it will be a notch lower and actually will hover between about half and 1% of sales going forward. That is a notch less than what you've historically seen. I think what we have shown you is that we are moving from the large restructuring plan to the continuous improvement mode. It means we can conduct some time, very focused restructuring plan, but as mentioned, in term of magnitude, it will be lower. The 0.5%-1% is the guidance for it. Maybe, Konrad, you can start with a quick view on emerging markets and if there are abilities to invest, and then we move to Werner and Ruud. Yeah. If you take a broad view at the emerging markets, I think it's fair to say that for Performance Coatings, most of the CapEx is actually behind us. We're very pleased with our footprint. If you look at Latin America, if you look at Asia, if you look at the Middle East, if you look at key growth regions around the world, most of the CapEx is actually behind us. What you see is we still have one new plant, which we likely will open early next year in Thailand. That is more of a consolidation. It allows us to actually concentrate production in the industrial zone outside Bangkok, combining three factories. There's also one more consolidation that we will do in China, where we will actually concentrate on our Changzhou site for vehicle refinishes, also powder production. It allows us actually to close our powder Ningbo facility. These are more consolidation plays than that we're actually adding capacity to support growth. We are happy with our footprint. We have enough capacity. Most of the CapEx for us in the growth markets is behind us. Werner? When it comes to Specialty Chemicals, we have two new plants under construction in China, one an ethoxylation plant here for surfactants at Ningbo, and another one here for our polymer chemistry chain here for a pretty large plant. We keep investing here in these areas, but since the growth rates do decelerate, now it takes longer before we make the next plants, and we will benefit here from the ALPS acquisition, a world-leading performance systems, now in order to get more out of the existing plants. Naturally, the plants are pretty new, and there is always a relatively cheap way to get incremental capacity out. We keep investing also in this area. Yeah. For Decorative Paints, the investment made in emerging markets were mostly in Asia, and indeed, based on growth. We opened a factory in India I think two years ago, and we opened a factory in South China for Deco last year, and we are finishing the Wukong factory, the West China factory early 2016. With that capacity in place, on the mid-term, we are in pretty good shape to support further growth, especially in China. Thank you. Next question. Shadi from Goldman Sachs. A question really on your portfolio. If I look at the vision statement you're putting out on the divisions, for Specialty Chemicals and Performance Coatings, to me at least, it absolutely ties in with the current situation. If I look at Deco, you say that you're a leading global Decorative Paints company in size and performance. Having exited North America, I suppose one region is sort of gone. My sort of direct question is, are you the best owner of Decorative Coatings? Because when you exited North America, PPG post that has had a significant improvement in operations. If I look at your 2016 to 2013 return on sales targets of 8%-10%, it's sort of still roughly in line with best-in-class coating peers, if that. Just the honest question is, are you the best owner of Decorative Coatings? Do you think that there is strategically something up for to be done here? We are extraordinarily happy with the way our Decorative Paints business has been developing compared to what we saw in the 2012 and 2011 time frames. We've seen the Decorative Paints business an absolute core, and we continue to see it as absolute core. We do run AkzoNobel as a company with three distinct businesses, Decorative Paints, Performance Coatings, and Specialty Chemicals. As you're aware, we're not driving it from a communication perspective as a synergy case. We clearly do have synergies from a supply chain, operation, research and development, and even intercompany supply perspective. We're driving it in such a way that we want the individual businesses to perform in line or better than their peers. We've seen significant incremental steps in all of the businesses, including Decorative Paints, in taking place, and that incremental improvement is actually what we're containing. We're very happy with our Decorative Paints. We think we have the core ability to run it. We're very different in terms of our geographical presence than many of our largely and heavily American-based peers that we've seen. You also need to clearly take that into consideration because there's different dynamics in these different markets. We're clearly a good performer if you look at the broad base of Decorative Paints players, and we will continue to drive that performance going forward, as Ruud has shown. Just to follow up on the supply chain presentation, you said that about 22,000 people were sort of linked to supply chain. Just want to understand what has that number been historically, and if there is any scope for a reduction in personnel in that area. Maybe Dave, you can give an indication. Of course, our factory footprint rationalizations has taken a number of people out, overall, maybe you can give an indication on the 22,000 people that are there and what has historically been the case there, in the last couple of years. Well, 22,000 that we talk about in supply chain obviously includes all our production factory workers all the way up through our management ranks. Of course, we have kept that in the last couple of years relatively stable. Of course for us, what's important, though, is we continue to drive productivity. Labor productivity improvement is really what we really focus on. What we've done, as indicated, is with the factory rationalizations and with some of the layers that we've taken out, that has also affected the integrated supply chain community. Overall, we've been really focusing on getting the best out of it in terms of performance, delivery performance and quality of performance, were some of the individual examples David has shown. Next question, please. Tim Jones, Deutsche Bank. Two questions, if I may. The clear tone today obviously is a slight shift towards growth as opposed to pure cost cutting. Let's presume that 2016 is significantly weaker. Should we also assume that, as in the past, there is a sort of plan B in respect of cost savings and that you could slightly reduce the emphasis on growth if that growth doesn't come through from a macro perspective through 2016 and 2017? That's the first question. The second question is in regard of Deco. Probably for the last two and a half years, every single quarter, there is speculation that your Deco performance will blow up simply because of Valspar in the U.K. I wonder if you could address the issue of competitive pressure from Valspar in the U.K., how tough Valspar is, how much you've been impacted by that in the last year or so, and what you're doing to counteract the competitive pressure. Thank you. I will try to take your first question, and then I would ask Ruud to answer the second question related to Valspar in the U.K. One of the strengths that I think this team has developed overall in all of the areas of responsibility is to make sure that we have a built-in flexibility to respond. In 2013, very early in 2013, we not only communicated the targets for 2015, we also communicated what we thought the growth rates would be from that moment on until now. That certainly was a growth rate that was significantly different from what occurred. The skill that we built as part of delivering the strategy so far has been that what I call drawer number 1 and drawer number 2, when the actual growth or other aspects of the business do not occur. We've had to open several drawers during the course of 2013 through and including 2015 to deliver, and that skill, of course, is something that we've now built into the organization that may not be in the European environment, which was a very heavily affected area during the last three years. It may actually start occurring in other areas. We have now a broad-based skills that has a contingency planning on top of what we normally envisage the markets and our own businesses to do. Ruud, on Valspar? Yes. As I presented in my, let's say, specific example on the U.K., this is a big market in Europe, EUR 1.4 billion, as I mentioned, and we have a very strong position in the market, especially with our institutional Dulux brand. There are always competition dynamics in the market and also in the U.K., and we are closely following that. I have to say that the tinting market is still a small part of the U.K. market because the U.K. retail market, which is, let's say, 50% of the total Deco market, is still heavily reliant on ready-mixed assortments, where we, of course, also have a very strong position indeed. Overall, yes, we follow closely the competition. We are happy to say that our position is improving. We are growing the business in the U.K. and still enforcing our very strong position. Next question, please. Can I follow up on the slide from Maëlys on investments? One blank spot, only recent investment is North America. In Deco, you're not there. Can I just ask the heads of the Performance Coatings and Chemicals business, are you skeptical on the gold rush into shale gas, or is there limited demand for new investments from your end customers? Why is North American map empty on CapEx? I think, Werner, you're probably the most suitable one to answer as a participant in the North American chemical business. Okay. Here, the shale gas revolution, I think that is a big asset. It provides very promising growth perspectives here for the chemical industry in North America. You know that in the Gulf region, more than EUR 100 billion is being invested based on that. How do we benefit from it? We benefit in different ways. We have quite some business in North America, a manufacturing network here for bleaching and also the other business unit, with the exception of industrial chemicals are there. Bleaching is a very energy incentive business. We do benefit here from the low energy cost here in our manufacturing. That is a very effective base for now for our bleaching business. The second business which is benefiting from it, that it is our polymer chemistry or polymer chemicals platform. They are the providers here for the initiator, for the catalyst, for the manufacturing of plastics. The manufacturing of plastics will increase, and we will grow with this business. The third platform is surface chemistry. There are ups and downs. We are now suffering a little bit due to the lower number of rigs, so lower drilling activities. On the other hand, the production didn't come down, so when it comes here to the stimulation of oil wells, where we also provide products for, we are benefiting from it. All in all, we do have the benefits here from in the business as we are, but we don't need significant investments here to further support it. It is a significant structural benefit for the North American environment. Yes, you called it a bonanza. I think, whether it is that or not, it is certainly a mid to long-term benefit for the North American producers, of which we are one. Can I just follow up on the polymer additives? The other region where there's still chemical CapEx put into the ground is Middle East. How are you positioned in terms of polymer additives there? In the Middle East, we have no hard assets in the ground. It is for us a target market. Just by way of example, as the Middle East is, of course, growing with this low oil and basic petrochemicals. The chemical industry in the Middle East is not bigger than the chemical industry in the Netherlands. When it comes here to supplying here additives, for instance, here for the plastics industry, we cannot justify manufacturing it there. For us, it is an important market here for the polymer chemicals chain, and potentially also for surfactants and for building additives. We are present here with having sales and marketing people on the ground. Once the market will be big enough, we would also consider putting concrete and steel into the ground. Next question, please. Hi, it's Jeremy Redenius from Bernstein. I'm just curious to hear about the risks to achieving the top end of these new set of targets. Let's set aside external factors like the markets and currency, what are the risks that you can control that worry you the most? Perhaps if we could hear overall and by business segment, what are the key risks to achieving your targets? Very broad question. I've been trying to pass on questions to Martin and Sven, this one's don't work this way. Basically, it's hard to assess individual risks by completely neglecting the outside world. The environment we operate in the various segments, in the various geographical areas, one great aspect of that is that there is an inherent hedge in individual volatilities in individual regions and individual businesses as well. Of course, it is important that we deliver on the creation of the culture of performance that Martin has elaborated on. Of course, it's important that we deliver on developing the culture of continuous improvement and the tools and the ALPS initiatives that Dave has been elaborating on. If there is an execution ability hiccup, that is something that would be a small risk associated with it. Overall, we believe that we have the people to make it happen. We have the management teams to make it happen. We're driving a lot of training, and Martin, maybe you can elaborate on that part, to make sure that we continue to have the talent attraction in the various regions. Overall, I guess the risk are associated by and large by disruptions in the external environment that we may not have foreseen today. As I said in my presentation, we are building and developing commercial excellence capabilities in the organization by training our salespeople, by training our technical sales reps, really to drive organic growth. We put a lot of energy in that and a lot of training hours as well. Also what Conrad elaborated, is to support it with sales incentives, and the right sales incentive is the right line of sight for those people. That's how we drive organic growth, and that's how we grow the businesses. Thanks. Next question, please. Yes. Frank Claassen, Rabobank. I've got a question on R&D. What do you currently see as your main topics, challenges for your R&D departments, and what do you see as a trend going forward for R&D expenses as % of revenues? I think why don't each of the individual business areas have a clear indication of what you think is key for your individual businesses? Rutger, you want to start? Yeah. I presented the key pillars for innovation with Decorative Paints. A key pillar is sustainability. Like I presented more and more, now also, let's say outside mature Europe and North America, you see the trends for demand for sustainable products. Especially with China, also where the government is really pushing for low VOC products and even raising taxes on VOC products. I really endorse that, and I think it's in the advantage of AkzoNobel as we are the driver for many years with more sustainable products. That will be a key pillar for RD&I to come up with more sustainable products, low additive products, and stay on the front line of these developments. Another thing I would like to mention is color in combination with digital. Visualizer that I showed you today, I think is a key breakthrough development where we see, I think we've only seen the beginning of the advantages for AkzoNobel by introducing it last year. Having the second version introduced in 2015. That linking with our color knowledge, which of course is shared with Performance Coatings as well. We are extremely strong, have a huge scale in creating technology, creating the right color, and then combining with inspiration and digital. For me, together with sustainability key pillar are our fantastic opportunities for AkzoNobel. Wille? Yeah. Okay. Chemicals, we spend about EUR 100 million a year on RD&I and on RD, our research is very close to the business although we have organized here our -- 75, three quarter of our people are organized in three research institutes in order to ensure that we have professional teams. We have all the world-scale laboratories and people in place, we have, on the other hand, we have it very close to the business. What is important for us, now it is one area is to create value here for the customers. I showed you some examples in this regard. Another one is new products, equally important here for chemicals is process improvement. We are in some areas it is important that we have scale, not that we've good technology in order to achieve a cost advantage. To create advantaged assets compared to our competitors. That is the balance that we try to do. So far, we never say no against good projects. To address here what is the level you're looking for. That is the current level we are spending, and we feel comfortable with it, but in case that we had requests and good projects, we would increase our RD&I budget. Commenting on RD&I for Performance Coatings. What we've seen actually in the last three years is that we've been able to free up a lot of our RD&I resources. If you look at what we did in the last two years, all these factory closures, before we closed a facility, we actually made sure that we standardized the product range before we relocated product to another facility. The last slide that I showed actually when I was talking about innovation, what you saw is an enormous reduction in the number of technology platforms. In the past, a lot of our RD&I people were basically occupied to keep in the air all these many different technology platforms for one and the same segment. We've actually reduced the number of building blocks. We've reduced the number of technology platforms. Which really has allowed us to free up the research guys to work much more on product development and focus a lot more on big innovations. We're seeing big innovations not only around the product, but increasingly around services around the product. I gave you some of the examples about Intertrac, where we're gathering the data, the global AIS positioning data. I gave you the example of our protective business, where actually we're using iPad application to predict maintenance requirements for large chemical plants or refineries. Actually, if you look at color, there's a lot of innovation around not only reading colors digitally with a colorimeter, matching them, but also actually developing them through algorithms. In the past, we were spraying manually panels and then developing colors manually. We've made actually big steps forward where we do that actually through computer algorithms, and we established a color factory in India to do that. That means a lot more efficiency, a lot more output from the RD&I organization. It's not our ambition to cut resources. It's our ambition to really allocate into product development and bolder innovations to support growth. Thank you, Konrad. With an eye on time, I know that many of you have remaining questions. We are, of course, still gathering outside here where all of you can continue to ask questions to the individual executive committee members and David Allen. I do think with an eye of time that we should closely wrap it up. Of course, additional questions can also be asked to our investors relations community who are present here in significant numbers. I do trust that we as a team have been able to show you that we've made significant steps in improving Akzo Nobel as a company, and that we want to use this foundation to not stop improving, but continue that, but on top of that, add a component of organic growth. We hope that we've been able to show you more about how these businesses are intending to do it, what the people aspects are, and how we want to build that continuous improvement culture from within, without the consultants, but truly in building the skills with our own people, with our own efforts, with our own tools, and with our own processes. Thank you very much for your attention for this long afternoon. I look forward to the quick break that we have at the end of this for continued discussions. Thank you very much. Imagine a world where you can become anything or anyone you want. Imagine a world where you don't have to be afraid of trying something new, something different. Even if it feels like you've no idea what you're doing. Just imagine it. Being able to make something in your mind become something real. Oh, what an adventure that would be. On the waves of your imagination till you get caught in a storm.

Data Source: Quartr Last updated: Oct 27, 2015

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