Lloyd Midwinter - Director, IR Ton Buchner - CEO Maelys Castella - CFO

Paul Walsh - Morgan Stanley Jeremy Redenius - Bernstein Tony Jones - Redburn Peter Clark - Societe Generale Martin Evans - JPMorgan Patrick Lambert - Nomura Markus Mayer - Unicredit Group

Good morning and welcome to the Akzo Nobel Q2 2016 Investor Update Conference Call. I'm Lloyd Midwinter, Director, Investor Relations.

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

A replay of the 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 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, who will start on Slide 3 of the presentation.

Thank you, Lloyd and good morning everyone. During the second quarter of 2016 we delivered continued volume growth and further profitability improvements.

Volumes were up although revenue was down due to adverse currencies. EBIT was up 9% and €491 million versus €452 million last year.

During the quarter both return on sales and return on investments improved overall and for all business areas. These results represent records for Akzo Nobel.

Net cash inflow from operating activities increased to $453 million up from $407 million in 2015 and at the same time further de-risking of pension liabilities has also been conducted. Moving to what is Slide 4, second quarter 2016 represents another quarter of improved financial performance with both higher volumes and improved profitability.

Bonds were up 1% driven by Decorative Paints and Performance Coatings, Specialty Chemicals Volumes were flat in a difficult environment. However revenue was down 6% mostly due to adverse currencies.

EBIT which constitutes operating income excluding incidental items increased 9% to a Q2 record level of €491 million. This reflects continuous improvement initiatives and lower cost partly offset by adverse currency effects.

And probability improved further with both return on sales and return on investments higher than Q2 last year for Akzo Nobel as a whole as well as for full business earnings. Net income attributable to shareholders was €312 million versus $331 million in 2015 and 2015 included a positive incidental item mainly related to the divestment of the paper chemicals business.

The adjusted EPS increased to 2% and as mentioned a number of times foreign exchange effects have during this quarter impacted all absolute numbers in a significant way. I'll now conduct a quick operational review starting with our end user segments on Slide number 6, the buildings and infrastructure segment is most significant for Akzo Nobel.

This segment it developing in very different ways depending on region and country. Trends for North America and Asia remain positive.

In Europe recent developments including the results of the UK referendum have increased uncertainty and currency volatility. Conditions remain challenging in Latin America mainly driven by circumstance in Brazil and Argentina.

In the Transportation segment demand for aerospace and automotive coatings continues to be healthy. We have started to see a slowdown in marine which we flagged for many quarters we see that including the new build activity in Asia as well as in the maintenance and dry docking activity.

The medium term outlook remains challenging due to reducing backlogs at the shipyards. As a general rule trends for the consumer good segments are similar to GDP, but consumers are being cautious based on the many external events especially in or around Europe.

In the Industrial segment demand has been impacted by a downturn in the global oil and gas industry which affects our protective coatings and surface chemistry businesses in particular. This impact is likely to continue during the medium term.

In general volatility has increased while visibility have decreased, our improved agility though as a company, our flexibility and our continuous improvement programs help us to deal with this situation. Turning to Slide 7, global manufacturing trends differ for region and country as well.

This metrics is particularly relevant for our industrial end user segments. Recent PMI data showed some recovery in Europe but France remains the outlier with manufacturing remaining in contraction.

However recent events including the UK referendum outcome may affect this generally positive trend in Europe going forward. Of course they were not included in the numbers by June 2016 overall.

China and Brazil continued to contract the U.S. expanded at a slower rate than in the past and Russia shows some initial signs of improvement but that is from a very low base.

Stepping to Slide 8, it shows the latest consumer confidence published by Nielsen and this is Q1 2016 data and the development during the start of the day, year in comparison. Consumer confidence remains low overall, although trends differ as well for country and region.

Consumer confidence is high and continues to increase in Asia and in the United States. However consumer confidence is lower in Europe and Latin America and decreasing in many countries in these two regions.

France continues to be one of the lowest countries and shows no structural recovery at this point in time. Consumer confidence has a clear influence on consumer buying decisions including houses, furniture, consumer durables and is therefore especially relevant for our consumer goods end user segment and our decorative paints business.

Turning out to Slide number 9, which is a question that we thought would be obvious in terms of what the impact maybe of the outcome of the UK referendum. Overall it's too early to determine the full impact as a result of the outcome of the UK referendum.

Although in the run up to the UK referendum and immediately afterwards we did see a slowdown in activity in our markets in the UK. We've also seen housing rotations reacting to the outcome of the vote but it is unclear whether this is short term or medium term trend.

We have a strong presence in the UK, in 2015 our total revenue was around 1 billion, around 7% of our revenue and our invested capital was 833 million and we had around 3500 colleagues based in the UK, a very relevant country for us. One part of course is our decorative paints business market leading paint brands like Dulux and Cuprinol are part of this business and this business is mostly local and fairly naturally hedged, which means we make and sell around the same value of products inside the UK.

Where we're not naturally hedged is in the area of raw materials where we sometimes have to import dollar denominated raw materials into the country resulting in some transactional foreign exchange exposure especially with the recent currency developments that have taken place. Our second significant activity in the country is our performance coatings business through our marine and protective coatings activities and the international brands we have a strong export business that may actually benefits from the recent currency developments, specialty chemicals that are relatively small presence in the UK.

The second bubble on this chart relates to the UK pension liabilities that we have as part of our overall pension liabilities of the company. The UK pension liabilities including the ICI Pension Fund and the Courtaulds Pension Scheme make up the vast majority of our defined benefit obligations that we regularly present.

We have in 2015 and 2016 agreed with the pension trustees of these schemes a schedule of top up payments until 2021. These top up schedule's will not be affected by the outcome of the UK referendum vote.

We are pro-actively managing our pension liabilities further de-risking of these liabilities has been conducted during the recent months building on the actions taken in recent years. The cumulative effect of de-risking means that around 80% of interest of our liabilities are interest rates and inflation risk hedged and around 55% of longevity is covered by insurance contracts and hedging.

Most of these buy-ins have been related to the ICI Pension Fund, so these percentages would be higher for this particular scheme. If we look at the impact that it may have on Europe the third bubble on the chart, we generate around 36% of our revenues from Europe excluding the UK.

It is definitely too early to tell the potential impact on the rest of Europe. We will continuously monitor local developments in the markets and we will prepare for a variety of scenarios.

To go through these quick three bubbles in summary if there is a likely impact on the business if the UK housing rotation continues to decline. When it comes to our pension funds the de-risking has reduced the uncertainty in the area and has been a positive development and if we look at the impact of Europe it's definitely too early to tell.

Now turning to our results, the Akzo Nobel results on Slide 10. During the second quarter 2016 we have increased volumes and improved profitability.

Volumes were up 1% driven by Decorative Paints and Performance Coatings while revenue was down 6% mostly due to exchange rates. EBIT was up 9% the numbers were mentioned before €491 million compared to €452 million last year reflecting the continuous improvement initiatives and lower cost partly offset by adverse currency effects and operating income was also higher.

Return on sales improved to 13.2% from 11.4% last year and the return on investment increased to 15.1% versus 12.2% in 2015. As mentioned earlier we've not previously reached this level of second quarter EBIT or profitability and therefore it constitutes a record for Akzo Nobel.

Going to Slide 11, it shows the quarterly trends for volume and price mix for Akzo Nobel and each of the individual businesses. As mentioned volumes were up 1% Q2 driven by Decorative Paints and Performance Coatings, volumes increased to 2% for Performance Coatings, 1% for Decorative Paints and were flat for Specialty Chemicals and demand trends differed per region and segment.

Where you can see as well is that deflationary pressure continues. This is particularly the case for Specialty Chemicals where price mix was negative 3% due to price deflation in several segments often due to formula based pricing.

Price mix was also negative 2% for Performance Coatings and 1% lower for Decorative Paints although this was mainly a mix effect and not necessarily a price effect. I'll now run through the highlights regarding the quarterly results of each of the businesses you can also find in our quarterly report the results for the half year which is a better reflection of the business performance due to the fluctuations during the quarter and a generally small Q1 for some of our businesses especially deco.

Let me start with Decorative Paints on Slide number 12, volumes increased 1% mainly due to positive developments in Asia. Volumes continued to be down in Latin America and were slightly lower in Europe.

Recent developments in Europe have increased uncertainty in some countries for example as a result of the UK referendum. Currency volatility has also increased including for the pound sterling.

In Latin America market conditions remain challenging due to economic instability and currency devaluation. Demand was positive in many Asian markets and in China volumes were positive despite continued challenging conditions in the construction market in this country.

Revenue were down 7% and as you can see on the chart mostly due to unfavorable currency effects, price mix effect was mainly due to mix. EBIT and operating income were up 2% mainly due to higher volumes and lower costs partly offset by adverse currency effects.

Due to foreign exchange volatility in all regions these foreign currency effects adversely impacted the often dollar denominated raw material costs in local currencies. Return on sales increased to 12.4% from 11.3% in 2015 and return on investment improved to 12.3% versus 10.4% last year.

Q1 was also strong for Decorative Paints although this was a smaller quarter therefore it's better to consider the performance for the half year by combining Q1 and Q2. Highlights for Performance Coatings are shown on Slide 13, volumes were again up 2% with positive developments in all reporting units.

Demand trends differed per region, Protective Coatings volumes were up due to strong demand in Asia. However volumes in marine coatings were impacted by the slowdown of new build activity in Asia as well as reduced activity for maintenance and dry docking.

Volumes in automotive coatings were up particularly in Europe. New business in Asia helped to offset a general slowdown in specialty coatings elsewhere.

Volumes for powder coatings were positive especially in Europe while demand was subdued for wood coatings. Coil and packaging coatings grew in Asia while France differed in other regions.

Revenue was down 5% mostly due to adverse currency effects as you can see in the chart. The price mix effect was mainly related to mix.

EBIT and operating income were up 1% due to higher volumes, continuous improvement initiatives and lower costs offset by unfavorable currencies. Return on sales increased to 15.1% versus 14.2% last year and return on investment increased to 31% from 23.9% in 2015.

Moving now to specialty chemicals on Slide 14, volumes were flat with positive development in some segments offset by lower demand in oil related segments. Volumes for industrial chemicals were higher mainly due to increased manufacturing availability in our Frankfurt and Rotterdam facilities while our functional chemicals activities was lower compared to a strong previous year.

Development for surface chemistries were positive in Europe and Asia, demand for pulp and performance chemicals in the Americas was subdued partly due to destocking of customers. Revenue was down 7% due to adverse currency effects, divestments and price deflation in several markets.

EBIT though was up 10% due to operational efficiencies and lower costs while price deflation and adverse currencies also affected the results. In Q2, 2015 the divestment of the paper chemical business resulted in a €30 million incidental gain in the operating income affecting the year-over-year comparison on this line.

Return on sales increased to 14.8% compared to 12.6% in 2015 and return on investment improved to 17.1% versus 16.1% last year. I will now hand over to Maelys for a financial review.

Thank you, Ton and good morning everyone. Starting with some financial highlights on slide 16, the key indicators demonstrate that Akzo Nobel continues to improve.

We deliver a strong financial performance in Q2 2016 with profits and margins increased with EBIT operating income return on sale, return on investment all higher than last year and EBITDA also increased. Net cash from operating activity was €453 million, 11% higher than 2015.

Cash discipline continues with CapEx around 4% of revenue were operating working capital lower than last year at 12.6% of revenue higher than end of year due to normal seasonality and net financial expenses down €5 million. In terms of shareholder returns adjusted EPS was up 2% at €1.32 versus €1.33 in 2015.

Net income attributable to shareholders was €312 million lower than last year due to positive incidental items related mainly to the divestment of the paper chemical business in Q2, 2015 therefore net income is also improving excluding this incidental items of 2015. I now run-through some financial topics in more detail.

Turning now to slide 17, it can be helpful to briefly consider as Ton mentioned out here due to fluctuations during quarters. In the first half of 2016 we have also improved profitability in [indiscernible].

EBIT was up 9% at €825 million compare to €758 million last year reflecting continuous improvement initiative including [indiscernible] GBS program and lower cost partly offset by adverse currency effects. Operating income was also higher up 7% for the half year.

Volumes improved to 11.6% from 10.1% last year and return on investment increased to 51% versus 12.2% in 2015. ROS and ROI improved for all business areas.

I will now run through the main factors contributing to these results. On Slide 18, you can see the EBIT grade, so EBIT was up 9% and operating income increased 7% for the first half year 2016.

The operating income reached -- show the main factors that contribute to our performance improvement. In the first half 2015 total incidental item were €34 million of which €30 million were related to the divestment of the paper chemicals business.

In 2016 operating income was positively impacted by an incidental gain on sale of assets of €23 million during Q1 2016. Foreign currency has become [indiscernible] during 2015 and these adverse impact is expected to continue.

Volumes has been higher although deflation repressures continue leading to a negative impact from price mix. These is particularly the [indiscernible] for Specialty Chemicals where price mix was negative 3% due to price deflation in several segments often due to formally based pricing.

Price mix was also negative 2% for performance coating and 1% for Decorative Paints although this was mainly mix effect. Other category includes the net impact of the following items.

Restructuring charges were lower than 2015 although our guidance remain 0.5% to 1% of revenue for the full year. Incremental benefits from all both the [indiscernible] of improvement action taken in previous years as well as continuous improvement program in particular of GBS represent a substantial amount.

Moderate additional raw material benefits also contributed to the improvement although with oil and TIU2 prices stabilizing we expect year-on-year benefits to be lower during the second half of the year. These stands were partly offset by normal level of wage and other cost inflation.

Moving now to cash flows on slide 19, free cash flow generation improved 20% versus last year demonstrating the positive impact of higher operating results with EBITDA margin from 15.4% to 17.3% combined with continued cash discipline on CapEx, reduction of working capital and lower interest paid. Interest continues to reducing thanks to the redemption of high coupon debt and refinancing at 1.125% with our new bond issued at this year.

Net cash inflow from operating activities was up at €453 million compared to $407 million in 2015. CapEx remains under control at 4.1% of revenue.

Free cash flow after CapEx and pension top up payment improved 20% to 300,000 or 1 million. In slide 20, you’ve the pension liabilities according to EIS at 10.

The net balance sheet position of the pension plans at the end of Q2, 2016 remains deficit of €0.4 billion in-line with Q1 2016. These was the results of the net effect of lower discount rate and a buying transaction of £0.6 billion in the quarter resulting in minus 131 million negative impact offset by higher returns, lower inflation impact and other items.

Turning now to Slide 21, further derisking of pension liabilities including NET [ph] buy-in for the ICI Pension Fund of £0.3 billion in Q1, 2016, £0.6 billion in Q2 2016 and an additional £0.8 billion completed in July. This means a total of £1.7 billion pension liabilities has been covered by non-cash buy-in during 2016 year-to-date.

These buy-ins do not impact the recently agreed top up schedule as mentioned by Ton. The cumulative effect of the derisking activities means 80% of the interest rate and inflation risks and approximately 65% of longevity risk is covered by insurance contracts and hedging.

Most of the buy-in have been related to the ICI Pension Fund so the percentage would be higher for these schemes. These will reduce further volatility and uncertainty related to the defined benefit obligation and associated top-up schedule.

We continue to actively manage our pension liabilities. I will now hand back to Ton for the final section of our presentation.

Thank you, Maelys. On Slide 23, you see some business highlights of Q2 2016.

One is of course fund because wine makers are increasingly turning to corks made together with a component called our Expancel microspheres which help to ensure that wines are kept as perfect as possible but still have a cork top. On the second picture you see the technology center, the new technology center in Songjiang in Shanghai.

It's going to be the company's largest research facility in China and it will support our customers in all our end user segments. And the third picture is related to children in Brazil who can now test their all-around sporting skills thanks to the inspiring and imaginative use of paints with the unexpected cork [ph] initiative that we unleashed in the area.

Turning to Slide 24 for some concluding remarks, during the second quarter 2016 we delivered continued volume growth and further profitability improvement in all our business areas. Volumes were up although revenue was down due to adverse currencies.

EBIT was up 9% both return on sales and return on investment improved overall and for all business areas. As mentioned these results represents Q2 records for Akzo Nobel.

Adjusted EPS increased 2%, net cash flow from operating activities also improved and further derisking of pension liabilities have been committed. The market environment remains uncertain with challenging conditions in several countries and segments.

Deflationary pressures and currency headwinds are expected to continue. In these difficult circumstances the company has shown that the newly built strength and agility allows us to perform well even in these difficult market circumstances to-date.

On Slide 25, you see some upcoming events and while commenting on those I think we can now open up the floor for questions. Operator?

Three short ones if I can please, firstly the sustainability of the operating performance from the first half gross margin is up, cost down. Do the headwinds on that front get more challenging in the second half of the year or do you expect to be able to maintain a better operating performance despite the relatively benign top line?

That’s my first question. Second question, cash allocation as net debt comes down, what's the temptation to do other things with your cash flow be on the bolt-ons that you've mentioned?

I'm thinking about accelerating dividends maybe even buybacks given the undervaluation if your stock versus peers, just thoughts on that. And just finally on the pension fund top ups which I understand are mostly struck in sterling, is there any temptation to hedge at current FX rates to secure lower euro denomination to top-ups for the remainder of the year schedule.

Thank you.

I will answer the first and second question, I will pass on the third one regarding the top ups to Maelys. When we look at the first half we've seen small volume growth strong in the first quarter but less in the second quarter, we have seen continued improvements of productivity within Akzo Nobel which has been a significant contributor to the improvement of the results.

If we look forward into the second half we have seen and I guess all of us have seen significant additional geopolitical uncertainty coming in the direction of Europe and its near surroundings. We also see that probably year-over-year.

The comparison on raw material prices will be less because that started by and large in the third quarter of last year so overall we expect a continued tough operating environment going forward with some additional uncertainty in the environment. Overall we believe that we're a better company though to deal with these situations but we do not expect a improvement in the environment in some areas it may actually be the opposite.

When it comes to the cash allocation the priorities remain as presented at the full year closing, we have a strategy of operational improvement and organic growth that will certainly be one of the priorities that we will focus on both on acquisitions and on paying the top ups for our pension funds and then we will make a sound assessment of what the next opportunities would be well that's not the point at this point in time to communicate details there. Maelys in terms of the pension fund tops up and the sterling impact?

Yes on the pension top up and sterling impact as you know large part of our top up are linked to our two UK pension funds, so actually are in British pound but of course we also have large cash flow in the UK so we have a natural edge, if there is any doubt of course we monitor that carefully and we take appropriate decision but we first concentrate on the natural edging.

Can I just come back on the first question? How much of the gross margin improvement which you put down to raw material tail winds in the second quarter?

We have shown in the bridge on Slide 18 there is a combination of factors, you also on that page has seen a significant price mix impact as well and it shows that these internal improvements that we've seen are absolutely required that raw material effects are not something to count on and they've indeed been moderate in this. We expect them to be moderate going forward as well although we think that the year-over-year comparison will dissipate [multiple speakers] gives you the best impression also in terms of the deflationary pressures on both sides of the company.

It's Jeremy Redenius from Bernstein, I’ve three questions please. The first one in the Decorative Paints business in Europe, any evidence of a market share loss this quarter or for that matter this half year?

And second, could you talk a little bit more about the other cash inflow and the cash flow statement there's a plus $75 million what's behind that in the recurring or one off nature of that cash flow please? And then lastly I believe you often give an update for interim dividend at this point in time, correct me if I'm wrong but has something changed there with the interim dividend?

Let me start with your last question, normally we provide an update on interim dividend, I think at the Q3 report not at the Q2 reporting. So nothing has changed there.

To come to your first question, have there been any perceptions of market share loss in Q2 in Europe? The answer would be no, we take this very carefully and we've not observed market share loss in any of the relevant European countries that we operate in and when it comes to the other cash flow I'm referring to Maelys.

If you look at the cash flow the better way to look at it it's slide 19 that I have commented, you can see that it's pretty straightforward that improvement of cash flow is mainly due to EBITDA improvement, lower interest payment, better changing working capital and lower expenditure. So underline other change -- lot of the offset the valuation between interest payment on the P&L and the tax but if you look at the bridge from EBITDA to free cash flow you can clearly see that there is no exceptional items.

So last year just you referred to the [indiscernible] page 11, you see other changes that was lower last year because we had the reversal of these they [indiscernible] 30 million on it and we had also lower taxes last year so that’s why you see the difference between the P&L and the net cash.

Tony Jones at Redburn in London. I’ve got three, two -- first thing in terms of trade, you presented a somber message I think for how we should be thinking about second half of the year but from a practical point of view have discussions with your major retail partners, big customers began to change already from a sort of inventory and planning point of view Secondly, just coming back to the EBIT bridge, is there any chance you can give a rough percentage waiting to the other game.

I think you've talked about the fact that raw materials was modest so was that 10% or 20% of the 200 million gain and then on the BASF acquisition, any updates on timing, earnings contribution and how we should be treating this from a modeling perspective? Thank you.

Our intention was not so much to give a somber message but to give a fair and balanced message, I guess there have been a lot of events in the recent weeks that have made a number of countries whether it's Turkey or France or the UK have short term responses to it and we simply don't know how to the short term responses will translate into mid to long term effects. So intentions were not to be somber but to at least be realistic that some of these events may have a longer term effect and will not dissipate out of the system in just a couple of weeks.

So that's really what we're trying to do. In terms of our discussions with customers all of these customers are saying volatility has increased, visibility has decreased and these discussions have been going on over the last quarter in general but these events have made that statement even more valid and that it a continuous discussion with our customers and we do not expect that to change going forward unless we do see volatility come down a little bit and visibility to improve again.

I think everybody, our customers and ourselves are in the same position. We believe though that the increased agility of Akzo Nobel allows us to better deal with it and I think that's a positive development.

On the EBIT bridge as you know we don't split up the other set of details, it has been a moderate raw material benefit in a significant kind of contribution to the various continuous improvement programs that we now have institutionalized in the way we track and we run them and it will present a substantial amount of that block that is there, but you also see that a significant amount of that block is compensated by deflationary pressure on the price or on the mix side piece of the business and we watch it very, very carefully. Overall an extra level of detail we generally don't provide, when it comes to the BASF acquisition basically we said that we expect closing towards the later half of the -- the end of the later half of this year that hasn’t changed and until then and because there are -- in the German environment workers councils environments we have been asked to be quite restrictive in providing additional details at this point in time that’s not because we don't want to, it's because the process needs to be properly maintained.

Just two questions. The first one -- I hear obviously what you're saying about is too early to tell but in the housing downturn as we see in the UK normally the trade gets hit hardest and earliest I'm just wondering if it's any signs that trade is just a bit slower than retail with this uncertainty going and then second question from me is really on the CapEx or for on the CapEx in the Spec Chem.

I think in the first half it's back over 6% of sales. I know you've been doing quite a bit of spend in Europe which I presume is still following through but just wondering how you see that CapEx to sales in the Specialty Chem segment trend over the next year or two?.

Thank you.

Regarding deco as I indicated when I highlighted around the slide that was dealing with the UK referendum, in the run up to the actual referendum date we have seen a slowdown and the business has not recovered since as such because the insecurity is still there and as I indicated we don't know whether that is a trend or whether that is a short term effect, we are keeping close track of the housing rotation statistics in the UK and we will continue to do so. That is our exposure of course the housing market regarding the decorative paints business both on the trade side and on some of the dealings with the big boxes.

So there is no real difference between trade and retail early from what you can see so far?

Yes at this point in time I guess we just see clearly different general environment on both sides, I think both consumers and the trades are basically still trying to figure out what it means for them personally and so at the moment I can't really make comments on a different shaded response between those two. It's simply too volatility at this point in time, when I come to your second question CapEx or Spec Chem, we do see that specialty chemicals of course is the recipient of most of the capital expenditure.

They also provide very good return on that invested capital and when there is a positive investment we will certainly say yes to those, we continue to guide though that the CapEx levels for the corporation which means all three business areas combines will likely be going from -- we have guided 4% of sales to something that also based on currencies can hover between 4% and 4.5% of sales but that will be for the company overall and we will then determine the most attractive projects to put that money in.

It's just a question following up on the price mix comment which was obviously negative that coating [ph] performance. You said it was mostly mix not price, can you maybe just give a bit more granularity to that or what means and if that's a trend we can expect to continue going forward because essentially I'm just understanding that to me you're selling a high proportion of relatively low value or low priced products.

Is that correct?

Well what we've mentioned is that in the price mix indications that you’ve seen for this center. We've seen that within specialty chemicals the weight has been towards the price parts of that equation whereas as the weight in the decorative paints and the performance coatings businesses have been more towards the mix part.

Now mix is a very broad definition, so it's not only product mix that doesn't mean that people are down-trading it can also be geographical mix where the price per liter in one country that's growing in Asia is simply lower than the price per liter of a country in Europe that is growing less. So there's a whole variety of mixes in this mix block.

We haven't seen any concerning signals, what we have seen of course is that Asia has region that have been growing relative to the other regions.

The potential cost which was negative 41 million in the second quarter, is there anything usual one off in nature or can we interpret that as a reasonable run-rate for the rest of the year, it's well-below last year and the first quarter so anything you can give us on that will be great. Thank you so much.

Yes so the other cost in the Q2 2016 41 million versus 58 million as we indicated we had an impact of favorable one-off adjustment on the legacy provision. If we -- this is the main difference of corporate cost and other cost were in-line with the previous years.

So you should not take 41 as the forward-looking statements better than previous years.

Three questions, Ton can you comment a bit more on details on the positive plus two mix effect in performance coatings, I think for long term we have pretty weak numbers there so if you could put some more colors on which business which we can actually do mix effect, that’s question number one. Question number two again on the bridge of others the 70 million one-off legacy, just quickly does it actually not impact EBITDA as [indiscernible] on EBIT – it doesn’t actually effect the EBITDA line, second question.

And last one on, [indiscernible] numbers I think you come close -- in H1 2015 you were still around 30 million also -- you just mentioned if the run-rate is about the same as last year. Thanks.

Okay. Let me start with Performance Coatings, volumes were up 2%, price mix was actually down 2% and as we discussed earlier the majority of that was mix related.

So overall all three reporting units that we have shown in the booklet marine and protective, automotive and specialty and industrial and powder coatings, these three segments they have all shown growth. If you then go one level below I referred to the comments that I made earlier but overall I guess we have seen growth in all of these three reporting units whereas marine and protective was up so it's been underneath it several parts and changes, the price mix again was in this particular case primarily mix.

If I go through to the PIP or restructuring cost of course we don't refer ourselves to the improvement as a project anymore, we've moved into a more continuous improvement cycle, we expect to have restructuring cost between 0.5% and 1% of sales that means that we do expect additional restructuring costs to come through during the second half of the year in comparison to the first. Over all the benefits are included in the other block on page 18 that is where the incremental benefits for the improvements both in terms of the Akzo Nobel leading performances systems and in the global business services improvements represent a substantial amount.

And when it comes to the 70 million Maelys maybe you can?

Yes I confirm you that it is on the EBITDA but it's a non-cash item so in the cash it is treated but it's included in the EBIT and EBITDA.

Couple of questions please, first of all in deco. Can you please give us an indication how much volumes were affected by the week Brazilian economy and then second of all, in your specialty chemical activities can you please walk us through demand trends in China during Q2 i.e.

maybe talk about sequential volumes in April, May and June and then last but not least just quickly what's your exposure to Turkey in terms of coup? Thanks.

The deco question that you ask, what you see in the decorative paints is that revenue was down for the quarter with 22%. The only thing I can add to that number is that if you would look at the currency fluctuation between Q2 this year and Q2 last year that is approximately 20%.

So the vast majority of that revenue downturn is actually currency and then we generally don’t provide the details what then the difference between price mix and volume is for individual regions but you can assume that with the 22% being around 20% currency that at least the business has had the ability to adapt in such a way that the combination of volume price mix has been reasonably close to zero which I think is a compliment to the team in Brazil and in Latin America overall which is an added number for the entire region. When I look at specialty chemicals that there's no simple answer to that because each of the platforms have seen different dynamics, we have seen that the Chinese economy in general also for specialty chemicals has actually grown and it has grown a bit stronger also in terms of deco than we would have projected to you at the beginning of the year.

We see that a lot of it is related to stimulus activities of the Chinese government. So we cannot assess whether this is a trend but we do see that China has shown at least in the first half of this year a slightly better environment and we had anticipated and prepared for at the end of last year, if I look at the differences between this effect [ph] business where we've just commissioned an additional activity with a new investment grant which was just activated, we've seen some growth there.

If I look at the [indiscernible] chain of activities it depends very much on which part of the chain you would be talking about. So it's a very development but a slightly general positive and more positive environment than expected also for specialty chemicals.

When it comes to Turkey we have an active business in Turkey both on the deco and the performance coaching side are probably the most active businesses with local manufacturing in the country. It is not in the Top 10 of our countries and therefore not a published number like with the UK where we can say it's around a 1 billion and 7% of our revenue.

It is clearly less but it's another country where an instability will not show a positive development for business of course we feel sad for the events on the ground and the loss of life and the same counts for of course France and other areas but from a business perspective these developments are bound to not be positive.

Only one question remaining, the 3% volume decline at it's Functional Chemicals, can you shed more light on those please?

That is probably a revenue decline that you're talking about, but Functional Chemicals--

The volumes were down 3% compared to previous period.

Correct. Functional Chemicals you’re right, the volumes were down 3% compared to a strong previous year.

We've seen there that that the comparison has been tough and it be related to the combination of polymer chemistry and the ethylene oxide chain ethylene amines and ethylene oxide that is the area where the volumes have changed the most.

Last question on your volume development in deco in Europe, you say they were slightly lower, can we attribute that mainly to maybe a slower environment in the UK or are there any markets which have changed course in terms of volumes during the quarter?

Our definition of Europe is quite broad so it includes from Russia all the way to the UK and includes the Middle East and Africa as well and in that combined region which is of course very broad, it is slightly down. We basically have indicated that for the company as a whole Europe was slightly positive, for deco it was slightly negative and it's just the addition of many different developments and different places and that includes some Western European countries but primarily activities in the Middle East and Africa as well.

You may know that there was a very early Ramadan this not only affects some of the businesses as well but it is a combination of additions of 30 plus countries that we add up to a slide down for Europe for deco specifically although for the company as a whole Europe was slightly up.

Then allow me to thank everyone for their presence this morning. Thank you for calling in.

Allow me to wish you a good holiday season for those who are on the northern hemisphere and I wish you a wonderful day. Thank you and bye, bye.