Lloyd Midwinter - Director, IR Ton Büchner - CEO Maëlys Castella - CFO

Tony Jones - Redburn Paul Walsh - Morgan Stanley Jeremy Redenius - Bernstein Peter Clark - Société Générale Andrew Benson - Citigroup Laurent Favre - Bank of America Merrill Lynch Evgenia Molotova - Berenburg Christian Faitz - Kepler Cheuvreux Markus Mayer - Baader Bank Mutlu Gundogan - ABN AMRO

Good morning and welcome to the AkzoNobel Q2 2015 investor update conference call. I’m Lloyd Midwinter, Director, Investor Relations.

Today our CEO Ton Büchner and CFO Maëlys Castella will guide you through the results for the quarter. We will refer to a results presentation, which you can follow on screen and download from our website, akzonobel.com.

A replay of the call will be available for 30 days from one hour after the call is ended. There will be an opportunity to ask questions after the presentation.

For additional information, please contact Investor Relations. Before we start, I would like to remind you about the Safe Harbor statement at the back of this presentation.

Please note this statement is also applicable to the conference call and the answers to your questions. I now hand over to Ton to start on slide three of the presentation.

Thank you Lloyd and good morning everybody. First, a summary of some key achievements.

We’ve been able to make further progress on our strategy of delivering leading performance from our leading market positions and that despite challenging market conditions. All businesses have demonstrated strong performance improvement with continued lowering of the cost base and updated operating models now in place for each of these businesses.

We’ve completed the divestment of our paper chemicals business, generating €30 million of profit. A triennial review of the ICI Pension Fund has been concluded as well with an actuarian deficit lower than the agreement we reached in 2012.

Further de-risking has also taken place. A total value insured through buy-in transactions conducted in 2014 and ‘15 is now £5.4 billion equivalent to more than 50% of the total liabilities of this specific fund.

And we are on track to deliver our 2015 targets. Let me go through the operational and financial results in more detail, starting on slide four.

Our financial results for the second quarter continued to demonstrate how AkzoNobel is delivering improved performance in a challenging economic environment driven by the significant actions taken in recent years. Revenue was up 6% to €3.9 billion and operating income up 38% at €486 million, reflecting the positive effects of our process optimization, lower costs, reduced restructuring expenses, divestment results and favorable currency developments.

Both our return on sales and our return on investment improved to 12.3% and 11.7% respectively. Return on sales was up 280 basis points and return on investment was 160 basis points higher.

Net income attributable to shareholders was up 61% and adjusted EPS 37% higher. Net cash flow from operating activity was €407 million versus €393 million last year.

We will continue to build on this strong foundation for further increase in our profitability and to successfully achieve our 2015 targets. Let me step to the market for a moment with the four key end-user customer segments that were primarily serving with our products.

Slide five shows these end-user segments based on the percentages that we sold in these segments of 2014 full year. Challenging market conditions continued in most of these segments with very significant differences per geography and also very significant different developments in these geographies.

The buildings and infrastructure segment is developing different when it comes to geographies. The U.S.

remains positive and that is relevant for our performance coatings and our specialty chemicals business activities that we still have there while in Asia the challenging conditions in the Chinese construction market persist. There are large variations in Europe from various countries and it differs from positive trends in countries like the Netherlands to challenging environments in Eastern Europe, particularly in Russia.

In the transportation segment recent developments for marine have been positive while the longer term trend is flat to possibly even downwards if we look at the backlogs of the various yards in the Asian region. Demand for aerospace remains healthy while vehicle refinishes is fairly steady.

The consumer goods segment shows trends for furniture similar to the construction market that I’d described earlier and growth in consumer electronics slowed. In the industrial segment, demand from oil and gas industry is clearly down, both on the capital expenditure for new build side but also on the maintenance and the drilling side, activities that we all supply products to.

Developments in the pulp industry are positive and we completed the sale of the paper chemicals business during the quarter. Trends for other segments differed per geography.

As we normally do, we have both PMI as a photo shop for June and consumer confidence in the next two slides. PMI is most relevant for the industrial side of our business.

Values above 50 indicate an expansion of purchasing manager activity. And the picture continues to be mixed with some mature markets in expansion, while Brazil; China; and Russia show clear weakness.

U.S. growth remains relatively strong with the rate of expansion moderated.

China remained below 50 which would indicate continued contraction; it has been below 50 for quite a while now. Europe overall remains in expansion with variations across the region and improvements in the Netherlands in particular, a positive sign despite the recent discussions around Greece.

You see that several European countries are actually above the 50 line which is that positive sign that we’re referring to. Both Russia and Brazil remain negative with no signs of meaningful improvement in the near future.

The overall global picture therefore remains one of slow growth which is gradually slowing further, primarily based on the countries that used to be high growth markets. Europe may show initial signs of a moderate recovery but the slowdown in some emerging markets as well as in some of the great countries, changes dynamics significantly and therefore we do not expect any significant positive developments in our markets in 2015 in the aggregate.

Stepping to slide seven, overall consumer confidence remains below 100 including for Europe where some countries have become more positive than before. Russia, Brazil and China have become more pessimistic than before and we do not expect this to change in the near future.

There has been some improvement in France, although confidence in this important European market still remains very low. Confidence remains highest and continues to increase in India.

Consumer confidence has an influence on consumer buying decisions, including housing, cars, furniture, and consumer durables. I’ll go through the operational and financial results in more detail starting on slide nine.

AkzoNobel delivered in the second quarter 2015 another consecutive quarter of operating margin improvement. Revenue was up 6% to €3.9 billion due to 9% favorable currency effects offset by divestments that we’ve done and lower volume in some areas.

Operating income was up 38% at €486 million, reflecting the positive effects of process optimization, lower cost, reduced restructuring expenses as well as divestment results and favorable currency developments. Total restructuring charges in the second quarter amounted to €24 million compared to €45 million in 2014.

This excludes restructuring charges linked to the divestment of paper chemicals which was included in the incidental items. We’re managing to achieve the planned savings with restructuring expenses in 2015 that are lower than previously envisaged, and this is a very positive development.

Restructuring charges for the full year are likely to be nearer to €100 million for the full year 2015. Raw material prices were lower, although in certain regions foreign currency effects had significant adverse impact on the raw material prices in local currencies and that has affected the businesses in these regions.

Both return on sales and return on investment improved. Return on sales was 12.3% or 11.4% when you exclude the incidental items and that is versus 9.5% in 2014.

Return on investment increased to 11.7% up from 10.1% last year. Slide 10 shows the quarterly trends for volume and price mix development.

Economic uncertainty continues to impact all our businesses. The market trend in North America continues to be positive; Europe in aggregate is not improving yet.

Conditions remain challenging in many countries including Russia, Brazil and China. Volumes were down 2% overall; they were flat for specialty chemicals; 1% lower for decorative paints; and 3% lower for performance coatings.

Price mix was flat during the quarter which is consistent with the previous three quarters, although it was 1% lower for specialty chemicals. And I’ll now step into the individual business areas for some more details.

Highlight for decorative paints are shown on slide 11. Revenue in decorative paints was up 6%, mainly driven by favorable currency effects and slightly offset by 1% lower volume.

Volumes for the second quarter were up in Asia while volumes were down for Europe and Latin America. Market dynamics varied by country and many of them were challenging particularly Russia, Brazil and China.

Price mix was flat overall and operating income was up 25% due to the new operating model, lower cost, reduced restructuring expenses, strict cost contentment and favorable currency developments. Return on sales increased to 11.3% versus 9.5% in 2014, a significant improvement.

Moving average return on investment improved to 10.4%, up from 6.2% last year. The new operating model in Europe is fully functional and the focus is now on continuous improvement.

Slide 12 shows the highlights for performance coatings. Revenue was up 8% overall, benefiting from favorable currencies and higher demands for our premium products.

Volumes declined in the quarter mainly due to lower capital and maintenance spending in the global oil and gas industry where we have a relevant presence. Russia, Brazil and China remain challenging as well.

Price mix was flat for performance coatings. Operating income increased 24%, driven by cost reductions from performance improvement initiatives including the management de-layering, the manufacturing side consolidations and general spend reductions, but also margin management activities, manufacturing productivity and currencies have helped.

Return on sales increased to 14.2%, up from 12.4% last year. Moving average return on investment improved to 23.9% versus 22.1% last year.

Several factor closures were finalized in Q2 while others continue to progress. The main efforts related to the de-layering of the organization, is expected to be finalized in the third quarter of this year.

Turning now to specialty chemicals, highlights for Q2 are shown in slide 13. Revenue in specialty chemical was up 5% due to continued favorable currency effects, partly offset by the impact of the divestment of paper chemicals which was completed early May this year.

The divestment has an annual revenue impact of around a €150 million in 2015. The deal includes tolling agreement that will expire over time, with which volumes will transfer.

Volumes were flat. Growth in some segments compensated for lower demand in oil and gas drilling segments where specialty chemicals supplies to.

North America continued to show a positive trend while growth in Asia was subdued and demand remained weak in the overall European market and in South America. Operating income was up 65% or when corrected for the incidental item related to the divestment of paper chemicals, it was up 31%.

Results were supported by the increase of production at the new Frankfurt plant, operational efficiencies throughout the different businesses and favorable currency developments. Return on sales increased to 14.9% versus 10.1% in 2014; and if you exclude the incidental items, it increased to 12.8% compared to 10.2% last year.

Moving average return on investment improved to 17%, up from 9.6% last year. On a comparable basis, return on investment increased to 16.2% versus 13.6% in 2014.

We broke ground on the next expansion of our Ningbo facility and brought the Frankfurt facility on stream in full. We also agreed to upgrade our last industrial chemical facility to the newest membrane technology to be ready by 2017.

Slide 14 shows the operating income bridge for the first half of 2015. Operating income increased 39% to €792 million.

Foreign currency effects were favorable and combined with acquisition and divestments contributed €69 million to the results. The divestment impacts include the sale of paper chemicals business.

Volume was down 2% overall, representing a negative €53 million and there was a slightly positive price mix effect in the aggregate for the first half year. Restructuring costs for the first half of the year were €54 million lower than in 2014.

Restructuring charges for the full year are likely to be near €100 million compared to the previously communicated guidance of around 1% of revenue or a €150 million. We’ve generally been guiding between a €100 million and €150 million and believe it will be at the lower end of this bracket.

The benefits from improvement programs more than compensated for wage and other cost inflation. A culture of continuous improvement will be the basis for further benefits in the future and others include benefits from the improvement program, wage and other cost inflation, raw material cost, depreciation and amortization and other items.

Moving to slide 15, we continue to make progress towards our financial targets with increases to both return on sales and return on investments. In the first half of 2015, return on sales was 10.5%, up from 8% last year; return on investment improved to 11.7% for the same period versus 10.1% in 2014.

Our targets for the full year 2015 are 9% return on sales and 14% return on investments. These targets are an important step towards achieving our vision of leading market positions, delivering leading performance.

The significant actions taken in recent years from a sound basis for further improved performance and we’re on track to deliver our targets for 2015. Turning to slide 16, two focus areas were started up during the course of last year and show traction in 2015, commercial excellence and continuous improvement; they will be the basis for future benefits.

Commercial efficiency and commercial excellence will drive organic growth and sales force efficiency by delivering quality products and innovations to our customers at a lower cost to serve combined with continued margin management. This will improve both, customer satisfaction, as well as sales and marketing productivity.

We’re moving away from project based restructuring towards a continuous improvement in the business areas and functions, driving higher productivity in the supply chain as well as in our offices. Dedicated teams at the central integrated supply chain level combined with the business areas and site teams drive this new way of working through the organization.

On slide 17, you see some business and innovation highlights from Q2 2015. Our decorative paints business transformed a wonderful historical street in Antakya, Turkey with the help of 500 people and 1,000 liters of paint helping safe guard the heritage of 13 civilizations.

Performance coatings provided our coatings technology to the Gode Wind offshore wind farm near the German North Sea coast, one of Europe’s largest clean energy projects. 55% of all wind capacity features are coatings.

And we are proud the pioneering waste to chemicals consortium has grown into 14 partners who join our specialty chemicals business in the quest to turn waste into raw material for other businesses. I will now hand over to Maëlys for the financial section.

Thank you Ton and good morning everyone. I will start with some financial highlights on slide 19.

The key indicators demonstrate that AkzoNobel continues to improve performance. Operational improvements led to higher return.

Return on sales was up 280 basis points or 190 basis points excluding incidentals and return on investment increased 160 basis points. Cash disciplines continue with CapEx around 3.5% of revenue.

Operating working capital was 12.8% of revenue, primarily due to seasonal increase of operating working capital. Net cash from operating activities was €407 million, nearly 4% higher than last year.

The triennial review of the ICI Pension Fund was completed in July 2015, resulting in lower future annual pension top-up payments. In terms of shareholder returns, net income attributable to shareholders was up 61% and adjusted EPS 37% higher.

The slide 20 shows the income statement for the Q2 2015. EBITDA increased 20% to €610 million.

This performance was achieved, thanks to our improvement actions; new operating model; the reduction of restructuring charges; and lower cost. Strict discipline with regard to cost has had a meaningful impact on our selling, general and administrative cost which reduced to 29.1% of revenue in Q2, down from 30.4% last year same quarter.

There was visually no change in depreciation and amortization at €158 million. Operating income was at 38% at €486 million.

Excluding the impact of the sales of the paper chemicals business, operating income was 28% higher at €452 million. Net financing expenses decreased due to lower external interest expenses and reduced interest on provisions.

The Q2 effective tax rate was 23%. The year-to-date effective tax rate was 26% equal to the same period last year.

The tax rate was positively impacted by favorable one-time adjustments and the tax effect of the divestment. If we exclude those one-off effects, the effective tax rate year-to-date was 28%, the same level than last year.

Net income attributable to shareholders was up 61% at €331 million and adjusted earnings per share increased 37% to €1.30. Turning now to a summary of cash flow on slide 21.

Operating activities in Q2 2015 resulted in net cash from operating activities of €407 million, which was 3.6% higher than last year. The increased profit from continuing operations was partially offset by changes in working capital and provisions.

Working capital was impacted by currency variation and seasonal increase. Performance coatings continued to accommodate a temporary and planned inventory increase as part of the scheduled footprint optimization.

Capital expenditures were lower than last year at €137 million or 3.5% of revenue. We have completed the divestment of the paper chemicals business in May 2015, contributing in cash to €114 million during the quarter.

We continue our disciplined approach to cash management. The progress in Q2 clearly shows an improved cash generation.

And we are confident that we will become free cash positive in 2015. Net debt in Q2 decreased to €2.1 billion, down from €2.3 billion at the end of Q1 2015.

If we move to slide 22, pension liabilities according to IAS 19. The net balance sheet position of the pension plans at the end of June was €1.1 billion.

This was a result of the net effect of lower asset return and higher installation in the UK partly offset by higher discount rates in the key countries. Further de-risking of pension liabilities related to the ICI Pension Fund in the UK by the way of two additional non-cash buy-in transaction for a total of £1 billion gave rise to an adverse impact of minus €211 million during the quarter, which was reported in other comprehensive income.

In slide 23, we summarize the outcome of the triennial review of the ICI Pension Fund in the UK. Agreement has been reached in July with the trustee of the ICI Pension Fund in the UK.

We agreed both the actual deficit and the schedule of top-up payment. The actual funding deficit is lower at £850 million compared to £1 billion at the end of 2011 from the agreement of 2012.

This is a good outcome based on the extensive de-risking of liabilities and the low interest rate environment. Top-up payment will reduce by £28.5 million per year in 2016 and 2015 [ph] to £150 million per year compared to £178.5 million for 2015.

The recovery plan has been extended by £125 million per year from 2018 to 2021, finally driven by the de-risking activity and the lower interest rates. The new schedule includes the cash impact of the de-risking conducted in 2014 and 2015, including the additional buy-in transaction completing during Q2 2015 for £1 billion.

This reduces the top-up payments in the short-term and provides more certainty about future cash flows. During H1, as I mentioned, the de-risking has continued.

Buy-in transactions for a total of £1.5 billion have been completed during 2015 including £0.5 billion in Q1 and £1 billion in Q2. The total value insured for the buy-in transactions conducted in 2014 and 2015 is now £5.4 billion equivalent to more than 50% of the total liability of the ICI Pension Fund.

In addition, interest rate and inflation exposures have been effectively hedged. This is part of the active management of the fund which reduces future volatility.

Therefore we believe the additional de-risking and the new top-up schedule provides reduced volatility and more certainty regarding future cash flow. And now I would like to hand back to Ton for the conclusion.

Thank you, Maëlys. For more details on the pension fund slide 13, the appendix will provide you more details.

But when we turn to slide 25, we have here an example of our wonderful Human Cities initiative in action, where we partnered with the Monocle magazine on its Quality of Life Survey 2015, what makes cities more human and more livable and exciting. And it’s enabled us also to have a continued dialogue on the general concept of Human Cities with architects, designers and mayors.

Stepping through to slide 26 summarizes my concluding remarks. The strong performance improvement is again visible in all businesses.

We’ve completed the divestment of the paper chemicals business. The triennial review of the ICI Pension Fund has been concluded including further de-risking and exchange rate movements, positive market trends in North America while no improvements for Europe overall as well as lower growth rates in many countries like Russia, Brazil and China.

They will be determining the dynamics of 2015. The significant actions taken in recent years form a sound basis for improved performance and we’re on track to deliver our 2015 targets.

This concludes our formal presentation and we would be happy to take your questions. Please limit your number of questions to a maximum of two so that others can participate as well.

Thank you very much. We would now be ready for questions.

Good morning. Thanks for taking my question.

Tony Jones from Redburn. I have two and they’re both on the operating income bridge, slide 14.

So firstly, the other box, the gain is 112. Could you help us and perhaps break that down a bit into what savings came through from fixed cost reduction, what might have been raw materials, or whether there was anything else going on?

And then the other one, my other question was on volume. So, the minus 53, I’ve tried to do some working out how you got to that and I got a bit confused.

So, if I assume volume decreased nearly 2% in the first half and then use that as a decrease against a revenue line, I need to assume a massive contribution impact and drop through impact to get to that minus 53. Normally, we would normally assume it’s sort of 25%.

So could you help us think about what’s going on in that volume box? Thank you.

So, let me take your first question first Tony, thank you very much. The operating income bridge indeed is a bridge that we provided at most of the half year blocks.

And the other box does include I guess both the benefits from improvement programs offset of course by wage inflation, offset by other cost inflation and includes the raw materials as well. It has some depreciation, amortization in it and other items.

What we can say is that it includes relevant benefits from the improvement programs and also of course some smaller benefits from raw materials but the details of that are difficult for us to provide in more specifics. If we look at volume, I would prefer to pass it on to Maëlys as well.

The leverage effect is certainly one of the aspects that you indicate that are there with volume but Maëlys do you want to comment a little more on the volume effect on the OPI bridge?

As we mentioned, the volume here is 2% in the Q2; and Q1, we had also some lower volume, both in deco and performance coatings. So, this is really the result, there is nothing specific in this volume.

What we see is that depending on where the volume reductions take place, both the positive leverage and the negative leverage differs tremendously. We agree with you that any negative leverage is a very negative aspect in the development of OPI and this must have had to do with the geographical kind of split up of where these volumes have reduced.

It’s been good to see that despite this negative leverage that we have in system, we have still significantly improved our results for the quarter. Next question please?

Good morning guys and thanks for taking my questions. My overriding question really comes down to cash flow.

I mean you’ve been having to borrow to pay the dividend in recent years, pension top-up costs are down, EBITDA is up, restructuring costs are down. So, how are you thinking about the use of your balance sheet going forward, given you’ve been constrained on things like increasing the dividend and obviously shareholders have had to bear some of that pain on lack of cash flow as well and that now seems to be reversing.

What can we think about in terms of your expectations around using your balance sheet going forwards, uses of capital? Is it dividend; is it buybacks; is it M&A?

And just in terms of a simple question, the PIP cost, down to 100 this year. Is that the ongoing run rate or do we assume it goes back up to 150 next year?

Regarding the use of cash, indeed we are on track to be cash positive this year which is certainly something that we’ve worked very hard on. And I guess our preference as the management of the company would be to put it into entrepreneurial efforts in the company, meaning ways to grow the business and to find that growth, find the proper investments and if that would include bolt-on M&A that would be something that we would certainly consider.

Other aspects of the use of cash are certainly not excluded but overall our preference would be to put it into entrepreneurial growth of the organization overall. When I look at the PIP cost specifically, know the guidance that we are likely to be nearer to a €100 million is the guidance of this year.

We think that during the course of kind of the longer term out, a company like ourselves will need something between the €100 million and €150 million and in very difficult years maybe a little more but for 2015 we’re guiding these costs to be likely nearer to €100 million.

And just a quick follow-up, thanks Ton -- maybe for Maëlys on the cash flow side. Given the de-risking strategies you put in place, the buy-ins and the hedging, are we pretty much in a situation now where the top-up payments that you are negotiating, you know that almost 100% set in stone, so they broadly can’t really deviate from what you’re currently projecting simply because of those de-risking strategies around the change in assumptions, i.e.

the visibility you now have on the top-ups is pretty much set in stone? And that means that every dollar that goes in reduces the deficit by a dollar and we’ll see that coming down.

As I mentioned, effectively the large de-risking that enabled to now more than 50% of coverage by the insurance, that cover all the type of the variation and also the large hedging both on the inflation and the interest rate provides much more visibility and also reduces the utility. We still have more exposure on the longevity.

But as I said, it has been reduced by more than 50%. So definitely yes, we have much more visibility and reduced volatility than in the past.

The predictability has improved. Please do not forget that the euro cash flow headwind also has an exchange rate impact in here.

Two questions. So, firstly there has been some market commentary that Akzo’s perhaps defended market share in deco paints in the UK aggressively through price.

I just wondered whether you could confirm or I guess more likely deny that. Secondly, in chemicals, the customer outage appears to be tapering off.

So, should we expect some margin squeeze like for like in the second half as insurance payments get substituted with ongoing operating earnings?

James, thank you. In terms of the market commentary in the UK, that is a clear no.

We have seen players in the market that have worked differently than we have but we are certainly not to the -- showing the behavior that you’re indicating over here. On the chemicals side, I’m not exactly sure what you’re referring to, but in the Netherlands, we’ve had of course major issue at one of our suppliers and that situation is continuing while this particular supplier is on the one side providing replacement material; on the other side, they’re repairing the plant in the Netherlands that have the issues and that continues for the remainder of the year.

Hi. It’s Jeremy Redenius from Bernstein.

First of all, on the restructuring cost guidance this year, I understand you’ve reduced it from €150 million to about €100 million. What’s changed to enable you to do that because -- please confirm, I also heard that you said that you should get about the same benefits that you were expecting?

So, question is what’s changed that these benefits come at a lower cost? And then secondly, in Holland and industrial chemicals, I understand that Shell’s cracker has been restarted.

Is that alleviating the supply issue that you’ve been discussing or is there more to it than that and that won’t really bring relief in Q3 and it’s really a question of later this year? Thanks very much.

Indeed, the restructuring guidance for 2015, we are now guiding likely to be nearer to €100 million and that is indeed, because we see that on several of the restructurings that we have planned and we have budgeted in the various countries, both for factory consolidations and for de-layering, end up having to cost less than we originally anticipated. That is a very, very positive thing.

I know that some may consider this kind of odd but it’s actually a very good thing that our management team does so. Basically every month we come through what it calls to execute these particular actions.

And if we can do this at a lower run rate of restructuring cost, we will always choose for that option. And that’s happened in 2015, in a positive way and that’s why we do believe that the benefits will continue and that we’re on track to deliver the 2015 target despite the fact that we have to spend less.

On the Dutch situation, I guess I would refer to the answer I’ve provided to James earlier, the situation is still not one of complete steady state as it was. And therefore we do believe that it will continue for a certain part of the remaining part of the year.

And just to follow up on the restructuring cost, could you give us a couple of examples of why -- is it lower severance payments or lower remediation costs for site closures? Just a little more of an example there, please.

It’s actually -- we have examples of both. When you announce factory consolidations, it is sometimes the case that they take a year to year and half simply because you need to manage that transfer from one factory to another.

And at that point in time, you may not need all of the restructuring charges because everybody in the factory sees what the end result is and that may actually result in some reduced severance charges. The other aspects as an example could indeed be cleanup cost of the sites that you would leave.

So it is a combination of the two. And for all of them, we have concrete examples.

A couple of trading questions actually. Firstly, on performance coatings, you make the statement from decent growth on the premium products yet, obviously you’re talking about the oil and gas hit on protective, which presumably are also premium products.

So, I’m just wondering if that’s marine or what the movement is within there. And obviously there’s no mention also of auto OEM, which I realize may not suit premium but that was the first question.

Then the second one is delving into the European deco business a little bit. PPG are seeing some growth coming back in Q3, they say; they’re projecting that.

And an element within that would be France where they’re talking about positive French retail comps now where of course you’re bigger than them in that particular retail market, not in France overall. Just wondering if you’re seeing anything at all in what has been your toughest market.

And just a quick, I saw an advert for Johnstone’s in the UK, I think aiming really at the consumer, which is the first time I think I’ve seen that. I’m just wondering if there is quite -- obviously there’s quite a lot of competitive pressure building in the UK.

If we look at performance coatings when we talk about decent growth in premium products, we’re talking across the board with the exception of the protected coatings product that land in the oil and gas industry, yes, indeed they are also premium. That is not what we’re referring to.

But in most of our other segments whether it is vehicle refinish, whether it is specialty coatings, whether it is wood coatings or powder coatings, we have seen a decent kind of growth in people asking for premium products which is generally a very positive development. On the automotive OEM that you refer to, we have a very, very small presence, only related to the interiors of cars and some of the plastic part on the outside.

So, we’re generally not the people that benefit from significant growth in automotive OEM. We are primarily focused on the vehicle refinish side.

When we look at the European deco, what we do see is that the consumer confidence in France has increased, which is what we showed at the beginning of the presentation. That would normally suggest the leading indicator that the consumer spending in one or two quarters would potentially rise.

That is still of course more an expectation and not a guarantee. France indeed has shown significant difficulty in the last year and half.

So indeed, the comps are getting better but France continues to be a tough place to be and I don’t think that it will significantly recover but the comps will get better and that will be no different from us. We do see of course that we are very, very broadly present in Europe with a very large Europe -- Eastern European and Central European presence as well.

And there we see that still the strength that we see in some of the Western European markets has not returned. And on the individual companies active in individual markets, I would normally refrain to comment.

The fact that the UK is a competitive market has not changed.

Sorry, I didn’t mean auto OEM of course, I mean auto refinish where PPG were pointing to that as being strong as well as their OEM business of course which helped their number but a refinish sorry was what I meant to say. And they were pointing about being better presumably North America with the miles driven but anyway there was no mention of auto refinish in the statement that I saw?

We mentioned in the discussions earlier that basically refinish was reasonably benign and flattish for the quarter.

I’ll just go back to this one question right at the start in terms of raw material cost benefits and you explained that in terms of it being the other line. So you’ve got 7 million price mix gain, and you’ve got 112 million of which a proportion comes from low raw material costs.

How sustainable do you believe the benefits of low raw material costs are likely to be in the second half of 2016? Second question, you’ve talked about further factory closures being planned in performance coatings division.

Can you try and dimensionalize the incremental cost savings you hope to achieve that are not yet in the results? So what sort of magnitude of incremental restructuring benefits should we expect that have not yet fallen through?

Regarding raw material, the effect is rather different for our three business areas. Traditionally we have seen that the paints and coatings businesses have been able to retain some price strength whereas in the specialty chemicals business, it’s been generally completed away much quicker.

We see that taking place as we speak. So it’s harder to retain the raw material benefits in the specialty chemicals environment.

And I also believe that with the present significant oil price move, it certainly doesn’t mean that that is the same move in our raw materials, it’s far from it. But at least the pressure from a customer side on us is actually extraordinarily significant.

So, I do not believe that we may be able to hang on to all of it in the long run. It is a relentless pressure on the customer side.

But there is a clear difference between specialty chemicals and paints and coatings. If we talk about reference I made to further factory closures, we have announced a number of factory closures in 2013 and in 2014 and we are still in the process of continuing to consolidate these factories to the locations of destination of the product.

Basically that is similar to the factories that over staged various get closed. There are still some in that process.

Overall, we have given guidance that our restructuring costs normally have a benefit that hovers around oneish, a bit less than one and that it takes about 12 months to 18 months and in some factory closures even 24 months to actually come through and that continues to be valid.

Two questions I guess, one on China. For deco, you are talking about volumes being up in Asia generally but this is the only region where you have negative price/mix.

So, I am just wondering if you could talk a little bit more about the link between price/mix and volumes and whether this is just a reduction of pricing to get those ones out, whether you’ve been gaining share and generally how you look at these Chinese markets with the current headlines on the property market? And the second question is a technical I guess on CapEx and CapEx guidance.

The membrane conversion for your last chlor-alkali unit; can you talk about timing and size for CapEx? I mean from memory this could be your three digit CapEx number.

When it comes to deco, indeed we have seen volume growth in Asia. As you probably realize, Asia is a market where the refurbishment and the new projects are in different balance and for example in Europe where the market is very, very largely kind of house rotation and therefore refurbishment based and renovation based.

So the difference movements when it comes to either price mix or volume sometimes has to do with the timing of various projects and that’s what you likely see in the development in Asia overall. China as a market on the property side is truly a special situation.

There is a large amount of property awaiting to be sold, projects are getting smaller, the number of projects are still there but not the sizes that we used to see. Local competition has certainly increased in aggressiveness.

So, we do see a situation in China on the deco side that has some change of dynamics, although still very different between the north, the south and the east and the west where we still see growth in the west and less so on the eastern side of the country. So China is one that we watch carefully.

It is a country specifically on the property side, specifically on the new construction side that is taking a bit of a pause depending on which region you are in. When it comes to CapEx, indeed on the Frankfurt membrane upgrade that we did, we also expanded our capacity.

It was a very, very significant project. In this particular case, the one that we’ve announced also in Germany, the last one that we need to do, we’re doing that together with Evonik as per the announcement and that will be -- first of all it’s a much smaller plant; second of all the expenses are shared.

So it’s going to be a much smaller number nowhere near the triple digits and therefore not something I think that you should concern about from a CapEx perspective. Details on individual projects we generally don’t give unless they are truly significant and this one does not constitute part of that.

Good morning. Thanks a lot.

Just one question on working capital. It was affected by shut -- future shutdowns of some factories in performance coatings.

I was just wondering what is your view on the full year on working capital. And because you said that you expect more in Q3 but by Q4 you would probably be done.

So, I was just wondering how you see working capital development going forward.

Yes, indeed when we consolidate factories, we need to ramp up sometimes intermediate inventories to make sure that during the transfer we can properly serve our customers. And that’s some of what you see at performance coatings specifically as one individual reason why the level of inventory has been going up.

Overall, the continuation of the factory consolidation will go beyond 2015. So, it’s not something that stops this year.

So, we don’t make significant promises but we do keep very close track of our working capital. We do have a seasonal unwind towards the backend of the year which we expect to have in 2015 as well.

Whether we can make it to 2014 level exactly is something that we can’t guide for at this point in time.

Thanks for taking my one question, coming back to China and deco. You alluded to challenging conditions for deco in China.

In September 2010, your predecessor announced a strategy in deco to concentrate on the Chinese B and C cities rather than facing a very competitive situation in the A cities. Is that strategy still playing out for you?

I think since 2010, many things have changed in China. And we constantly adapt to the market environments.

We have actually a very broad presence in China. We’ve gone through most of the tier 1, 2, 3 and 4 cities and we’re constantly adapting the number of franchise stores, the number of projects and the type of projects that we’re bidding for.

I certainly wouldn’t say that the strategy remains the same as in September 2010; it’s gone through many revisions. China is a fast moving, a very dynamic market and we’ve almost left ourselves on a half year basis to the developments that are out there.

They’ve been generally positive certainly since September 2010, we’ve seen tremendous growth in China. We do see significant slowdowns of growth and even flattening in some of the areas in China, so we adapt again to what the new realities of China are.

So there is quite a difference between September 2010 and now. We are one of the largest players in the decorative paints business in China, we intend to continue to be that but certainly the developments have created quite some additional aggressiveness in the market that we, in a continuously growing market saw less of.

Two questions still remaining, firstly on your pension assets. Could you again remind us what the current split equity versus fixed income is?

And the second question, as you have now successfully mainly go through the restructuring process, is there also, despite this bolt-on acquisition you did recently, are there another portfolio change then expected; are there still assets you see as non-core?

I will answer your second question first after which I will provide the pension question to Maëlys. Indeed what we have to do of course going forward is that we need to hardwire the changes that we’ve done in the behavior of the people of AkzoNobel.

We have done significant changes in the operating model, the way we work and the culture that we’ve tried to change and that needs to be hardwired. Subsequently I guess we need to have serious traction on the programs that we have on commercial excellence and we also will consider to do bolt-on acquisitions for the company overall.

That will be the focus. The focus is clearly not on significant divestitures.

We’ve proved the portfolio in the recent years and we’re very happy with the portfolio we have today.

On your pension question, you have the detail in the annual report of the split of the funds but since that as we explained we did increase de-risking therefore the part of the insurance is now above 50% then the equity will be less than 10% and the rest is mainly fixed income.

Okay. So, there was no change after -- since annual report.

The change compared to the annual report is mainly the insurance part as we explained with the additional de-risking made on the first half of €1.5 billion the insurance part will have increase significantly that is as mentioned.

I believe the team together with proceed has been in a very constructive and good discussion with good result on the triennial review.

I have two questions. The first is a bit of a general question, or actually I’m asking for an explanation, because on the one hand you talk about a slowdown in several markets, tough in China, Brazil, Russia but on the other hand you also lower your guidance on the restructuring charges.

So, can you help me understand the relationship between these two seemingly bit of contradictory elements? And then secondly is on deco.

If I look at the EBITDA margin before restructuring charges, those were up 30 bps year-on-year. And to be honest, I had expected a bit of a higher number due to the cost savings.

So, can you walk me through what is going on there?

You’re correct in observing the fact that we guide for significant slower growth than in some of the countries that are in full-blown recession, even negative growth. So certainly the ones that we’ve highlighted like Russia and Brazil have less, negative growth on geographical parts and just kind of unrelated to the statement made that we are more efficient in the way we’re able to restructure those locations.

So on the one side, we have planned restructuring and those planned restructurings that we’ve been providing in detail to you in the past have kind of basically been able to be executed more efficiently while gaining the same amount of benefit. So, they are kind of inter -- not interrelated as such.

One is the statement on markets and the fact that we’re going to try everything to make sure that we continue to grow even in markets that make it more difficult for us and the second one is statement on the efficiency of restructuring. They are not contradicting in that sense.

We will of course when markets deteriorate further and also when they are different markets than the ones that were traditionally difficult, I have a look at what we need to do over there but the statement made on restructuring was on the planned restructuring activities that we had so far putting us in line with the delivering the 2015 targets. On deco, I think they’ve shown a significant improvement in instead of difficult market conditions.

I don’t share your opinion on disappointment, as such. But overall, I’ve seen a return on sales going from 9.5% to 11.3%.

And excluding the restructuring costs I’m looking at OPI level not at EBITDA level is going from 11.7% to 12.3%. So that’s the 0.6% improvement while volumes have been down which has provided that negative leverage that hurts us so much on the other side.

So despite negative volumes, we’ve still been able to improve the return on sales before restructuring costs with 0.6% which I think is the continuation of the drive that deco has shown and have all intention to drive that further.

In your presentation you have touched on tolling agreements in specialty chemicals and that they are selling out and expiring over time. Can you give us a timeframe here?

It’s a familiar effect and you might also would be able quantify that. Thank you.

When we announced the divestiture of specialty chemicals, we said that was a divestiture of a business with an approximate revenue of about €250 million. And we’re now telling you that for the remaining part of the year after the closing that took place in May, the effect for 2015 will be around 150.

Some of the delta is the two year effect where as we’ve only closed in May and the remaining effect is the supply but of course the full volume that we indicated was third-party sales of the business. The tolling effects are related to the difference and it will take a couple of years for them to fade up.

Two more questions. First of all was raw materials is a complex issue, a lot moving parts.

Do you see the raw materials basket continuing to be more favorable in Q3 year-over-year versus Q2? And then, secondly, any evidence of market share loss in any of your businesses?

Raw materials indeed have a tremendous amount of moving parts and customer pressures, ability to retain certain drop-offs of certain customer segments and of course the purchased materials that are oil related that have time lag in coming through, I think the combination of it would not make me guide for more favorable benefit in Q3. I think what we see is probably what the balance of the different pressures will provide us and I wouldn’t guide for significantly more in Q3.

We on the side of the market shares, we discuss on a very detailed basis per region, per business whether deco performance goes into specialty chemicals and look at individual market shares, these are generally not scientific assessments that you can do; you cannot do them every month; you need to do them over longer periods. And in the aggregate, we’ve honestly looked at it in every corner and angle we do not see market share losses for AkzoNobel and its individual businesses.

We do see shift in certain region sometimes. They revert again a couple of quarters later.

And overall, it’s a competitive environment with general shifts, but no fundamental shifts in market share along with the key players in the respective businesses.

Thank you very much.

We have I think time for one or may be two questions.

My last question in a way is a bit tied to the question from Jeremy just a second ago, which is on coatings. Back at the Investor Day in March last year, we sensed a shift from restructuring to growth and a transition from restructuring to growth in terms of your focus and focus of divisional management.

And since then coatings top line in terms of volumes has been what, minus 2% or minus 3%. So I’m just wondering is it the case that the commercial excellence and that side of the commercial excellence in terms of volumes and growth is taking more time than you were perhaps hoping for?

Is it that the underlying market has been tougher, although some of your peers have actually appointed some decent volumes growth in things like packaging or is it that generally there has been more focus on restructuring and it’s difficult to actually do both restructuring and growth? Thank you.

So specifically on performance coatings, not deco.

Yes, on the coating side, we have indeed a number of commercial excellence projects running. And they have been running at the same time that we have been de-layering the management team.

The de-layering started at the end of Q3 and has been running through and will continue and likely be finished in Q3 this year. So, there have been a number of things going on in general.

It is of course always difficult to compare individual players because their geographical market positions and the geographical developments are very, very different. We basically checked it very carefully business line by business line, region by region.

And overall, as I indicated to Jeremy, we’ve not seen market share losses that are relevant or consistent over time. There may be individual movements taking place, but in the aggregate, we believe we’ve maintained our market share.

We have seen in some of the markets depending on the quarter that you look at, growth. You see it for us, for example, quite significantly in marine during the course of this quarter.

You see it in other areas as well. It is a continuously fluctuating market that doesn’t show a steady state environment in either direction.

New technologies play, conversions play a role as well, specifically in the packaging business. And therefore you see some areas going quicker than others and some players being faster in some areas than in other areas.

But overall, again everybody is playing on the new technologies specifically in packaging with commercial lines running in the various countries where that’s required. So, overall the answer remain to same as to Jeremy, we don’t see market share losses; we do see a very tough environment.

We’re one of the broadest and most geographically spread performance coatings companies with one of the biggest global presences and industry variation. And therefore we’re most susceptible also to those countries that have sudden drops in their market environment, such as Russia and Brazil.

And that may determine some of the comparisons that you do with others.

Good. Thank you very much.

I thank everybody for participating and for their questions and wish you a wonderful day and wonderful summer season. Bye, bye.