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Welcome, and thank you for standing by.[Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.May I know introduce your speaker for today, Lloyd Midwinter. Please go ahead.
Hello, and welcome to the AkzoNobel Investor Update for Full Year and Q4 2017. I'm Lloyd Midwinter, Director Investor Relations.Today, our CEO, Thierry Vanlancker; and CFO, Maarten de Vries, will guide you through our results.We will refer to a presentation which you can follow on screen and download from our website, akzonobel.com. A replay of this call will also be made available.There will be an opportunity to ask questions after the presentation. For additional information, please contact Investor Relations.Before we start, I would like to remind you about the disclaimer at the back of the presentation. Please note, this is also applicable to the conference call and answers to your questions.I'll now hand over to Thierry, who will start on Slide 3 of the presentation.
Thank you, Lloyd, and good morning to everyone, and thank you for joining us on this call.2017 for AkzoNobel was, in many aspects, an extraordinary year. But before we dive into all those elements and the numbers, I want to compliment my team for making significant progress since we announced our strategy to create 2 focused, high-performance businesses: Paints and Coatings on the one hand; and Specialty Chemicals on the other. The separation of the Specialty Chemicals is fully on track for April 2018, as announced and as planned, and this business is now reported as discontinued operations. I thought it was relevant to keep this in mind as we discuss the financial results later in the presentation.Firstly, I would, however, like to highlight some of our achievements for this combined Paints and Coatings and Chemicals, the traditional AkzoNobel if I may say. We delivered another year of the record EBIT and real organic growth, driven by high volumes for both Paints and Coatings and Specialty Chemicals, supplemented with 3 bolt-on acquisitions. The Phase 1 of creating a fit-for-purpose Paints and Coatings organization announced in October 2017 is on track to achieve the EUR 110 million savings in 2018.Throughout 2017, we continued to act in line with our core principles. We achieved top quartile safety performance, which is now truly world-class. And we were ranked #1 again on the Dow Jones Sustainability Index for the chemical industry. And we also kept engaged on some of our social programs like Let’s Colour Walls of Connection in many cities around the world.On Slide 4, we see some key financial highlights. For the full year, the revenue was up 4%, excluding currency. And the EBIT was 2% higher, 2% higher than the record in 2016 and, therefore, a new record. The adjusted earnings per share was up 6% at EUR 4.4, and the total dividends proposed for 2017 is up 52% to become EUR 2.5 per share.During the fourth quarter, we made further progress. The revenue was up 6%, excluding currency, and EBIT was 30% higher than last year. Adjusted earnings per share was up 39% at EUR 0.92. We saw a continued delivering growth and increased profit.So let's turn to Slide #5. During 2017, positive developments continued for Decorative Paints, particularly in our Asia business, while challenging conditions in the marine and oil and gas industries impacted Performance Coatings. We continued also to see higher demand for Specialty Chemicals in all our regions. Some headwinds persisted, including higher raw material cost and adverse FX from foreign currency increasing throughout the year. So we're capitalizing on positive market trends and dealing with specific headwinds.We also continue to invest in our sites as well as on bolt-on acquisitions to support our organic growth. Some recent examples are shown here on Slide #6. During 2017, Specialty Chemicals announced or completed a further 14 capacity expansions to support customer growth in all regions. On the Paints and Coatings side, we officially opened our new Ashington site in the U.K., which is the world's most advanced and sustainable paint plant; and a new center of production for Dulux in the U.K.Having acquired BASF's Industrial Coatings business at the end of 2016, we made 3 further bolt-on acquisitions during 2017, including Disatech in France, Flexcrete in the U.K. and V.Powdertech in Thailand.Turning to Slide #7. The separation of Specialty Chemicals either via a private sale or a legal demerger remain fully on track for April 2018. Internal separation of the Specialty Chemicals business is now complete. We are pursuing a dual-track process to achieve a full separation and will return the vast majority of the proceeds to shareholders as indicated in April 2017.I will now hand over to Maarten, who will take you through the financials in more detail from Slide 9 onwards. Maarten?
Thank you, Thierry, and hello to everybody on the call, and I, of course, look forward to meeting you all.As Thierry mentioned, Specialty Chemicals is now reported as discontinued operations, so please keep this in mind as our -- when you're going through the financial results.For the full year, Paints and Coatings revenue was up 4%, excluding currencies, driven by higher volumes and acquisitions. Price mix was impacted by strong growth in emerging markets. EBIT was 2% lower due to higher raw material costs, partly offset by increased selling prices, continuous improvements and cost control. Return on sales was 9.4% versus 9.8% in 2016. And the operating income includes identified items of EUR 80 million, mainly related to the transformation of the Paints and Coatings organization.Turning to Slide 10. During the fourth quarter, Paints and Coatings revenue was up 5%, excluding currencies, driven by higher volumes for Decorative Paints. Price mix continue to be impacted by strong growth in emerging markets, and EBIT was up 19%, with increased selling prices, continuous improvement and cost control, partly offset by higher raw material costs. Return on sales increased to 7.8% compared to 6.5% last year.Turning now to Decorative Paints on Slide 11. For the full year, volumes increased with 7%, with growth in all regions. Revenue was up 4%, excluding currencies. Price mix was impacted by strong growth in emerging markets where average selling prices are lower than slower-growing, more mature markets.Volumes were up for Europe, Middle East and Africa, with positive developments in most parts of the region, but the U.K. was affected by lower consumer confidence. Adverse currency effects were mostly related to the pound sterling.Revenue for Latin America grew 7% due to higher volumes across the region. Positive demand trends continued in Asia, and revenue was 8% higher, driven by strong growth, particularly in China, and up 14%, excluding the currency impact. Significant growth was realized in both the premium and mass market segments. And Vietnam and Indonesia also continued to deliver good revenue growth.Overall, EBIT was 2% lower due to adverse currency effects and steep increase in raw material costs, partly offset by continuous improvement and cost control. Return on sales was 9% compared to the 9.3% last year.Slide 12. During the fourth quarter, Decorative Paints revenue was up 7%, excluding currencies. Strong volume growth was partly offset by adverse currency and price-mix effects. Positive developments continued, especially in China, and growth improved in Latin America as well as other regions.Revenue for EMEA was up 3%, excluding currencies, mainly due to higher volumes. Demand trends differ per country in the region, and uncertainty continued in some markets, including the U.K. Latin America grew revenue by 14%, excluding currencies, driven by higher volumes. And revenue for Asia increased with 9%, excluding currencies, with strong volume growth partly offset by adverse price mix due to significant growth in the mass market.EBIT was up with 14%, driven by volume growth, increased selling prices, continuous improvement and cost discipline, partly offset by adverse currencies and higher raw material cost. Return on sales finally increased to 6.3% versus 5.7% in 2016.Turning over now to Performance Coatings on Slide 13. Full year revenue for Performance Coatings was up 4%, excluding currencies, mainly due to the acquired Industrial Coatings business. Volume growth in most segments and regions was more than offset by adverse conditions in the marine and oil and gas industries. Volumes increased for Specialty Coatings in most regions, and revenue was up, mainly due to positive price-mix effects. Automotive Coatings revenue grew for all regions, and volumes for Powder Coatings were also higher, while demand for Industrial Coatings differ per region and segments.EBIT was impacted by higher raw material cost and lower volumes, partly compensated by continuous improvement and cost control. Return on sales was 11.6% versus 13.4% last year.For the fourth quarter and at Slide 14, Performance Coatings revenue was up 3%, excluding currencies. And volumes increased for Industrial and Powder Coatings as well as Automotive and Specialty Coatings. However, adverse conditions persisted in the marine, oil and gas industries.Volumes in Marine Coatings continue to be affected by the slowdown of new-build activity despite some recovery in other segments. Protective Coatings volumes decreased due to fewer oil and gas projects. Improvement actions and cost-control measures remain a key focus for us in this segment.Revenue for Automotive and Specialty Coatings was up 6%, excluding currencies, due to higher volumes. Industrial and Powder Coatings revenue increased by 10%, excluding currencies, due to the acquired Industrial Coatings business and volume growth and positive price mix.Fourth quarter EBIT was impacted by adverse currencies, higher raw material cost and lower volumes, partly compensated by continuous improvement and cost control, so the overall return on sales was 9.7% compared to 10.9% in 2016.Turning now to Slide 15, which shows the quarterly trends in volume and price mix. Decorative Paints has continued to deliver strong volume growth, while bolt-on acquisitions are contributing to growth for Performance Coatings. Price mix for Decorative Paints continue to be impacted by higher volumes in emerging markets where average selling prices are lower compared to more mature markets. Please note that these emerging markets are highly profitable and fast growing.We have been increasing selling prices during the second half of 2017 and continue to increase selling prices to deal with the higher raw material costs, although these measures are expected to take several quarters before the necessary mitigating impact is fully realized.On Slide 16, you see the main EBIT developments for 2017. Foreign currency turns from being a positive in the first quarter to increasing unfavorable during the year. There was minimal impact from the acquired Industrial Coatings business as we integrate the operations and production volume is being transferred to nearby AkzoNobel manufacturing facilities.Higher volumes for Decorative Paints contributed positively, partly offset by lower volumes for Performance Coatings due to ongoing weakness in marine, oil and gas. Price mix was impacted by strong growth for Decorative Paints in emerging markets where average selling prices are lower than slower-growing, more mature markets. Price mix was flat for Performance Coatings overall.Raw material prices were higher compared with the previous year. This represented a headwind of nearly EUR 300 million during 2017. We continue to implement increased selling prices to deal with the higher raw material cost. Productivity improvements from our ALPS continuous improvement program achieved cost savings at a similar rate to previous years and more than offset rates and other fixed cost inflation. Strict cost control contributed positively to achieving the results.Turning now to Specialty Chemicals on Slide 17, which we have reported as discontinued operations. Full year revenue increased at 5%, excluding currencies, due to positive volume developments and price-mix effects. Volumes were up in all business units and regions. Europe, Asia, Latin America showed particularly strong growth during the whole year, but North America suffered most from supply chain disruptions such as the Hurricane Harvey. EBIT was up with 10%, with higher volumes and cost control more than compensating for inflation and raw material price increases. And return on sales increased to 13.8% from 13.2% last year.Turning to Slide 18. During the fourth quarter, Specialty Chemicals revenue was up with 9%, excluding currencies, due to positive volume developments and price-mix effects. Volumes were up in all regions and business units.In Europe, the business benefited from good demand and strong pricing, while Asia continued a strong year and Latin America ended with a very strong quarter. Positive price mix reflects the successful pass-through of raw material price inflation. Fourth quarter EBIT was 40% higher, with favorable volumes, price-mix developments and cost control improving the results significantly versus last year. Return on sales increased to 13.4% compared to 10.1% in 2016.Turning to Slide 19. Free cash flow for continuing and discontinued operations, as shown here, was impacted by changes in working capital, provisions and identified items.Turning to Slide 20. Cash management discipline, in particular operating working capital and capital expenditure, continues to be an area of focus. We performed well compared to peers when it comes to operating working capital, and our disciplined approach to capital expenditure continued in 2017 even while invested in growth. We will maintain this discipline and seek to improve further going forward.Slide 21. During 2017, we paid a special cash dividend related to the separation of Specialty Chemicals. This impacted our net cash generation and net debt as shown here on this slide.Then on Slide 22, we outline the development of the pension deficit according to IAS 19. The remeasurement effects of liability experience and demographic assumption changes as well as top-up payments of EUR 275 million in 2017 reduced the deficit. Pension plans of Specialty Chemicals had a deficit of EUR 0.5 billion according to IAS 19 and are now classified as held for sale. This means that the pension plans related to the continuing operations have a surplus of EUR 0.4 billion according to IAS 19. However, it is important to note, these pension plans have an actuarial deficit, and the top-up payments are based on this valuation methodology.Turning to Slide 23. Our dividend policy is to pay a stable-to-rising dividend each year. The total dividend proposed for 2017 is up with 52% to EUR 2.50 per share, following a similar increase in the interim dividend and in line with our announcements in April last year. And a special cash dividend of EUR 4 per share was also paid in December 2017 as advance proceeds related to the separation of Specialty Chemicals.I will now hand back to Thierry for some concluding remarks from Slide 25 onwards.
Thank you very much, Maarten. We are clearly on track to create 2 focused, high-performing businesses, including the separation of Specialty Chemicals by April 2018. AkzoNobel delivered, in a very eventful year, another year of record EBIT and real organic growth, supplemented, as I stated before, by 3 bolt-on acquisitions. And the Phase 1 of creating a fit-for-purpose Paints and Coatings organization as announced in October 2017 is on track to achieve EUR 110 million of savings in 2018.Now turning to our outlook shown on Slide 26. The headwinds that we experienced during 2017, including much higher raw material costs and adverse effect from foreign currencies, are projected to continue in 2018, especially during the start of the year. We anticipate positive ongoing developments for Decorative Paints in all regions, particularly in Asia. The trends for Performance Coatings are expected to be overall positive for most segments and regions while still remaining challenging for Marine and Protective Coatings. We continue to implement various measures to mitigate the current market challenges, including increased selling prices and a strict cost discipline.Our “Winning Together – 15 by 20” strategy will increase and create a focused paints and coatings company to deliver on our 50% return on sales by 2020 guidance.I will now hand it back over to Lloyd for information about upcoming events and the Q&A session. Lloyd?
Thanks, Thierry. Before we start the Q&A session, I would like to draw your attention to some upcoming events shown on Slide 27. We will hold an Analyst roundtable later today, and the presentation taking place at 14:00 CET will be made available by video webcast on our website, akzonobel.com.We will publish our annual report next week on March 15 and announce our Q1 results for 2018 on April 24, shortly followed by our AGM on April 26.This concludes our formal presentation, and we would now be happy to take your questions. [Operator Instructions] Operator, please start the Q&A session.
[Operator Instructions] Our first question is from Tony Jones.
Firstly, could you talk a little bit about price trends for 2018, so perhaps add in some detail in terms of how the negotiations with major customers are changing so you can do better than in last year? And then a question just on the EBIT bridge, Slide 16. The other box, please, could you split that up into the various buckets? So how much cost was there from inflation, restructuring expenses? And also, help us understand what that cost control component was?
Well, thanks for the question. Maybe I should -- this is Thierry Vanlancker, I'll take the first half of the questions, then Maarten, maybe you focus on the EBIT bridge and those related questions. On pricing, I think it's fair to say that AkzoNobel has a track record of getting its own product prices aligned to the raw materials, and we see no reason why that would not be the case going forward. In fact, we've seen in the fourth quarter our prices going up, and a lot of the announcements were done in the fourth quarter and in the first quarter. So we're pretty, I think, optimistic on how we're going to correct that. Of course, if you ask the question for Paints and Coatings in general, because I think that's the segment that you're referring towards, it's a whole mixed bag of how those contracts are happening going from store sales, which is almost instantaneous; to negotiations with bigger customers, where you often have a direct impact or a quarterly impact or half year or even a yearly impact; hence, the fact that January 1 was an important day for many of those [indiscernible]. In general, I would say that the price increases are, of course, always a mode of tension with any customer. But that it's clear that what the drivers are, so we feel pretty encouraged by the progress we've made. As we pointed out in previous calls during 2017, the biggest item was that it came somewhat unexpected for the whole industry during the first quarter. And as a result, comparisons with the first quarter also in 2018 will be more challenging because those was still the golden quarter versus then the hard work we had to do afterwards. But then, in addition to that, it came unexpected and it actually came rolling in continuously. So even the price increase that were done were actually then too little in fact, very quickly as the raw materials kept edging upward. Before I hand it over to Maarten, maybe one indication on what we expect, as we get our old prices up, what we expect for raw materials, we do still expect increases in raw materials in 2018 somewhere in the single digits. We have taken it into account in our pricing actions in the market, with quite some intensity on how we get our prices up, so we expect that not to alleviate in the coming months. Maarten, maybe on the EBIT?
Yes. On the EBIT bridge, you're talking about EUR 189 million order bucket, so that is a net bucket indeed that includes wage inflation. And the wage inflation for Paints and Coatings is a little bit less than EUR 100 million. So the gross number is, you need to add that number, and then the saving buckets are basically across-the-board. This sits in G&A, sits in our selling expenses as well as our [ RDNI ] as well as -- and I think that's also an important bucket to mention, partly it's also a stock revaluation where the raw material prices are increasing, it's of course also a positive effect in our stock revaluation coming in. And that amount is, of course, also a material amount as part of this bucket.
Next question is from Peter Clark.
I've got a total of 2 questions. On the face of it, the Paints and Coatings margin, the hit year-on-year, obviously, it seems to be alleviating. But I do remember, of course, in Q4 of '16, you were taking some charges in that number, particularly, I think, cost cutting in Marine and Protective and in the Performance Coatings. Just wondering if you could share what the number was in Q4 '16 of one-offs, because I don't think you had any restructuring in Q4 '17. And then also, in terms of the Marine and Protective, which, obviously, remains quite challenging, your competitors keep saying that as well. And obviously, the lead time on new ship orders, feeding through into coatings, 15, 18 months. I'm just wondering, given the work you are doing, obviously, some alleviation potentially on raw materials as we go through '18, did you expect this business to start reporting positive profit growth in the second half? Or do you think it will remain challenging on the profit reported for the full year, at ForEx aside, of course?
Let me maybe address the second part of your question and then go to the one-off question that you had. On Marine and Protective, Marine has its special dynamics and Protective has its special dynamics. It's all kind of linked to oil and gas. What we see if you'd ask around the Marine, we do see the shipbuilding finally stabilizing and actually trending slightly upwards, but I wouldn't oversell that too much. So I would say, fortunately or maybe unfortunately, the time line for recovery that we have indicated earlier in 2017 is still holding. So we said end of '18, beginning of '19 that we see some trend upward, because new-build is more than half of that segment. So we've done pretty strict cost control. That's ongoing also in Protective Coatings. We put the 2 businesses also together because that allows much more synergies between those 2 businesses. The growth model was not the right approach for the time being. I think your questions are also around then what other steps do we take? Well, as you know, we kind of are the big player in that whole Marine and Protective space. Besides cost control, then also raw materials, a lot of our [ out ] contains improvement, is around efficiencies and raw materials that we do. We've also done the acquisition. For example, the Flexcrete acquisition is right in the middle of our Protective business. It's a new technology that gets us into other parts than oil and gas for our Protective business. And then 2 pretty exciting new developments: we have a Chartek product that really can now efficiently, economically compete with the [indiscernible] products, which is, in fact, the big player in there, and that was always a part of the market, that was definitely to get into. And then what we've announced, it's LED technology for ship coating, which is a very sustainable, but actually a breakthrough in that market. So it's a combination of cost, it's a combination of being efficient on your raw material, it's a combination also of continuing to look at different segments and innovations to grow the market. I think we're well positioned there as we will explain also this afternoon. We have other markets that are growing very fast. These markets are finally stabilizing. And I think what we're focusing on is preparing the upturn, which we see more at the end of '18, early '19. And I hope that addresses your first question before I hand it over to Maarten for the one-off item.
Yes. So on your question on the one-offs, where I basically looked at is the Q4 2016 one-offs versus the Q4 2017 one-offs. And in the total analysis of those one-offs, basically, these are equal. So there's not kind of one-offs going through the EBIT line, which is impacting the EBIT in Q4 2017 versus 2016. On your specific question on the restructuring in Q4 2016, I don't know the exact details, and I would like to maybe take it off-line and maybe we can follow-up through the IR team.
Next we have Stephanie Bothwell.
I have 2 small questions if I can, and the first one is regards to your Other line. This morning, you provided us with a split between continued element in Coatings and a discontinued element of the Specialty Chems. Going forward, can we assume that, that is a reasonable assumption in terms of the splits of what we should expect in that other line? And the second point is regards to the comments that you made earlier with regards to the pension. So on Slide 22, we see that the continued operations on a line of surplus regards to deficit, but you made the comment earlier that the Coatings business cash top-ups will be linked to the actuarial and deficits. Can you give us some kind of steer or expectation in terms of what the cash outflows would be in the stand-alone Coatings business post the separation?
Yes. So first, your question on the Other line, that's a correct assumption. Although, maybe let me make a specific remark on the order for Paints and Coatings. Q4 was relatively low. As you see, the full year Paints and Coatings was EUR 150 million and Q4 was EUR 13 million. Going forward, I would more assume an overall BA order line, which sits somewhere in between what it was in 2016 and 2017. For reference, 2016 was, I believe, EUR 188 million and 2017 is EUR 150 million. But as we have completely splitted the BA order line in Chemicals, gives the right reference as well. On your pension question, so yes, we have a surplus from an accounting point of view for Paints and Coatings, however, still an actuarial deficit, sort of means that we still continue to see top-up payments. By the way, the triennial agreement will come up again mid this year, so that is a point of further negotiation. We also will, as part of the separation, as part of the proceeds of the separation of Chemicals, we will look how we can further derisk the pension funds going forward.
Next question is from Geoff Haire.
First of all, just on the 2020 targets that you've reaffirmed today, can you give us some idea of what assumptions you're making for ForEx and raw materials relative to where they are today to basically reaffirm those targets? And then can you help us with understanding what the book value is for Specialty Chemicals so we can sort of work out what the tax base might be?
All right. Maybe I'll let Maarten handle the tax questions, that's the luxury I have with having him around. And maybe go back to your first questions, which are the assumptions for 2020. I think for the raw materials, we will elaborate on that also this afternoon. For the reconfirming of the 15% by 2020, we'll walk you through 4 value drivers, which each have 3 very specific projects. In total, it's 12 projects to get to 15% by 2020. We have to answer your question maybe in a more general way. We have not assumed any windfalls in raw materials, although I think that goes in waste, so that is probably hidden upside in it. So what we've assumed is that what is the raw materials, what is the difficult timing in the market for getting our product pricing up, which has been historical and we see that with a couple of quarters delay and we basically can't offset those costs. And those are the similar assumptions, which I think are reasonable assumptions in our plan. So that is for the raw materials. For FX, those are more difficult one of the translation ones in there. I think the underlying one is about the FX situation we have today, that may be completely spot on, that may be completely optimistic or completely pessimistic. So we took basically today's situation as the implicit underlying assumption. So the other question around the tax, Maarten?
Yes. So for our Specialty Chemical separation, we follow a dual-track, either private sale or demerger. Both scenarios have tax consequences, but fair to say that the tax consequences for the private sale are higher versus the demerger. But in the overall picture and in the overall valuation in the side-by-side analysis, we, of course, take that well into account to make sure that we have a proper, consistent analysis of both scenarios.
But could you give us a number for the book value for Specialty Chemicals?
No, I'm not in a position to give that number.
Next we have Jeremy Redenius.
It's Jeremy Redenius from Bernstein. First of all, on the 2020 guidance, at one point, when that was first announced, you were talking about exceeding market growth such as you'd aspire to grow about 4% per annum to achieve that target. And just curious how your thinking around that has changed? I remember, at one point, we talked about maybe that include a little bit of bolt-on. And with pricing perhaps at your back, how are you thinking about the growth towards that target as well? I'm essentially curious, how much operating leverage might help? And then secondly, coming back to that EBIT bridge on Page 16. It sounds like -- I'm trying to get some help to separate what might be ongoing versus kind of one-off in nature in that. Because it sounds like the wage inflation will obviously continue to be a headwind, and then you've taken some cost control measures, but if you could help us think through a little bit more about how sustainable those cost control measures would be? I can see like hiring freezes and travel restrictions being something you can maintain for a little while, but tough to run for the long run. And clearly, the inventory revaluation wouldn't be ongoing, so a little help about ongoing versus one-off there would be helpful.
Jeremy, thank you. So let me answer the first question. By the way, I think the measures we took, most of them are sustainable, but I think that's for Maarten, I think, to get into detail. First, on the -- on your question around the underlying assumption for growth, yes, you are right that in the previous conversations, I think also with you, I think we talked about deemphasizing the growth number and having that as a mix between organic and inorganic. We got, of course, since we announced in April, much more details. We're also looking at the shifts in raw material, et cetera, on the 15 by 20 plan, and we'll elaborate on that at [ volume ] this afternoon. But what we basically have built the plan on is not needing above-market growth. I mean if -- I just want to point out that we are at this 4% right now. So what was deemed as impossible at beginning of the year, we have delivered that in a very difficult year, so there was merit to it. But we didn't think -- and that was what I've been impressing, we didn't think it was prudent to build a plan on exuberant growth in the market, because that is all sorts of unintended circumstances can happen. So we have built our plans on actually market growth assumptions, so being at market and delivering 15% return on sales on that assumption. Any upside into these, as you say, operational leverage will help. But we don't need that to get to the 15% by [ 2020 ]. That is -- and I think we'll have more details this afternoon. Maarten, maybe you can talk around the EBIT bridge?
Yes. Yes. So how should you think of this going forward from an EBIT bridge point of view? So we have basically a continuous improvement program running. And our continuous improvement program basically compensates wage inflation and cost inflation. So you could take that as a kind of a net balancing act. And on top of that, we have and we will talk about it extensively this afternoon in the analyst roundtable, we -- on top of that, we have a number of initiatives lined up to bring us to our 15% growth by 2020. But specifically, I want to say, we're on track to deliver the EUR 110 million cost savings, which we announced last year, and that will come through our bottom line in 2018.
Jeremy, maybe if you add on, that if you look at the dynamics of 2017, I think the whole industry, including ourselves, had a certain exuberance in the first quarter. Then the raw materials came in, and then you have a typical inertia, which we then expressed a couple of quarters and I think that's what the whole industry is kind of referring to, to get our market prices back in line with raw materials. So what we basically summarized in the last 4, 5 months of the year is what I would call good parenting. It's while we develop plans, as Maarten has explained, for ongoing structural savings and resets of the structures, et cetera, what we did is indeed do a number of items. Some of them are more sustainable than others. But I think that's what you do in good parenting of the business, while more sustainable elements kick in, as we will be expressing this afternoon. I'm actually very happy with our business and with our reaction if I compare it to peers in our market, I think, our Paints and Coatings business has shown [ resilience ].
Okay. Understood. Okay, so you basically had to ask the organization to tighten things up a bit enable to -- enabled the bigger programs and the stronger programs to...
In the start-up phase, absolutely, Jeremy, you're correct.
Next question is from Alex Stewart.
Just to go back to Stephanie's question on the actuarial deficit. The ICI Pension Fund triennial review, I think, [indiscernible] beginning of this year or at least some indication in the beginning of this year, do you have any idea how that actuarial deficit has changed from the roughly EUR 1 billion that was last reported at the beginning of 2016? Any sense of the -- at the movement would be [ great ].
I didn't hear your question very well to be honest. But your question is on the actuarial deficit and the change of the actuarial deficit. So I mentioned earlier that we have kind of triennial agreement in place. That's coming up again those discussions mid this year. And that will be, of course, a [ tougher comp ] discussion, especially given the fact that from an IAS 19 perspective, we were in a surplus, so yes, the discussion will get a different dynamic, but it's important to indicate that we still expect top-up payments going forward at this stage.
Okay. So you don't have any sense for how the actuarial positions the ICI and the Courtaulds funds have changed in the last 3 years?
No. Not at this stage.
Next we have Mutlu Gundogan.
The first question is on raw materials. So clearly, the Chinese plan to improve air quality had an impact on the availability of material. So just wondering what you're seeing on the supply side? Is that normalizing? Or are we -- now we are in a spring, so any comments there would be helpful. And then secondly, on your outlook. Just wondering why you have not provided a quantitative outlook as you did last year?
Okay. So I'll see if -- there was one comment we made around the availability, which I'm not sure you talked about, but let me talk a bit about the raw material situation. Availability was sometimes an issue in specific areas. I mean, that's definitely correct. I think our [indiscernible] position has been able to mitigate that, so we didn't have any bigger items in that. But then it often comes under -- if it's a tight market, it comes under certain raw material cost as we have discussed at length in previous answers for that. So for -- in that sense, I think we don't expect significant issues on getting the material. We do expect, as I've indicated, still increases in the pricing for raw material, and we estimate it to be in a mid-single-digit percentage. We have the plans in place to mitigate that. I mean, there's a number of elements that we have in place. But it also -- in fact, it's clear that we aim our pricing actions in our markets with that in mind, because we know that, that's actually [indiscernible]. Let me just stop here because I didn't hear all of your question, whether that answers the first part of your question.
It does. It does. I mean, it was a little bit specific on China, but it does I think.
Okay. I think, China, Mutlu, that's a whole different topic in itself. Yes, I mean, that has an impact in the TiO2 market, for example, notably, because it was a dislocation. And in Asia, TiO2 prices really went significantly high. Second thing is that, of course, for our Chemicals organization, who has a big production stake in China, there was the headwinds because some people were shutdown. People also had some losses because some people were shutdown who were supplying you, so it's kind of a mixed bag in general. On the second question, I think on the guidance, Maarten?
Yes. So on the guidance, we've given clear guidance for 2020. As you know, we had a 15% return on sales and 25% return on investments. For 2018, we don't give specific guidance. But I think it's important to realize how 2017 shaped up and how that looks for 2018. Specifically 2017, the first quarter was a very strong quarter. And in fact, the raw material prices started to kick in, in the second quarter and from the second quarter onwards. So that's also why we are flagging that we have a more challenging start of the year, given challenging comps, specifically for the first quarter, while we take time to make sure that the prices -- price increases are coming through and basically supporting our margin going forward.
Yes. So maybe to build on that, I mean, we haven't given the guidance, but I think we have earlier stated that in a 15% return on sales for 2020, that this is not flat, and that is going to be a big surprise in 2020 that we definitely want to have a curve that shows a logic from where we are right now to that number, and that's also what we have in mind for [indiscernible].
Next question is from [ Charlie Webb ].
Just a few from my side. First off, just CapEx guidance for 2018. If you could give us any steer for the group as a whole, and perhaps spacing out Paints and Coatings and Specialty Chemicals, that would be helpful. Second question, just on the negative mix. I understand it's about the regions where you're growing faster, but perhaps you could dig into a little bit more detail in the regions, maybe Europe, being touched on the U.K, which regions are doing well? Which regions are not doing so well that is driving that significant negative mix in the fourth quarter? And then should we expect that kind of mix effect to continue into 2018? And then lastly, just on Specialty Chemicals. Do you expect to continue to see, I guess, positive price mix or price development into 2018? Or do you think a large part of that we've seen in '17? That is all.
Right. So let me answer your questions in reverse order and then end with Maarten handling the CapEx question. On Specialty Chemicals, yes, we do expect that to continue in 2018. That business, in fact, has a different dynamic in a sense that a lot of the raw material prices are pretty automatic. So that -- as raw materials still go up, I mean, that's what you will see. In addition to that, that business continues to do very strong in all segments and in all regions. And we've announced about 14 capacity expansions last year in Specialty Chemicals. That's actually kind of a teaser for your CapEx question. And that, that continues to be the case, and all of these projects were high and fast payback projects that we did. Secondly, on the negative mix, I mean, we've indicated, if I look at the Decorative Paints, we saw our region's stabilizing or trending up, including Europe, Middle East, Africa that was a bit down. But in Europe, Middle East, Africa, the real growth tends to be outside of the traditional Europe and, therefore, you see a price-mix shift sometimes there, too. Whilst Asia is concerned, that is really going very strong for us, as we explained a couple of times, every time we look at Decorative Paints, you see a negative price mix, which is actually hiding very good efforts on price increases in the market. But the Asian pricing levels are lower than they are in Europe. Having said that, the profitability, the return on sales for those businesses is actually very, very good. So it's not dilutive at all. It's just in the price mix column, it actually shows a negative. So we expect that in large to continue as we see continued very strong [indiscernible] in our Asia business. Just want to point out for Decorative Paint that despite having taken a big raw material blow in 2017, I mean, a fair share of the EUR 300 million, we will see that, all in all, that business has delivered about the same amount as what was a very strong 2016. So just put it in perspective on how the Asia growth has played and affecting there. For the other segments, I think we see those that are growing and doing very well in our portfolio, continue to do so. Looking at [ way to refinish ], looking at powder and those businesses that actually were somewhat -- and regions that were somewhat under a challenge -- that would challenge [indiscernible] Protective we talked about. I think that's going to continue. So I don't see any major shift in price mix, but we'll see price increases coming in. With the CapEx, I think maybe, Maarten, you can handle that?
Yes. So for CapEx going forward, we'll be more or less in line with what you've seen in 2017. To be very specific, for our Paints and Coatings, we'll be around EUR 250 million. And for our Specialty Chemicals, we'll be around EUR 400 million.
Okay. Thank you, everyone. I think that concludes our Q&A session and call for today. Thanks for your interest in AkzoNobel. If you do have further questions or would like additional information, please contact Investor Relations. Full contact details available at akzonobel.com. Thank you.
And that concludes today's conference. Thank you all for your participation. You may now disconnect.