Hello and welcome to Akzo Nobel’s Investor Update for Q2 2020. I am Lloyd Midwinter, Head of Communications and Investor Relations.

Today, our CEO, Thierry Vanlancker; and CFO, Maarten de Vries, will guide you through the results. We will refer to a presentation which you can follow on screen and download from our website akzonobel.com.

A replay of this webcast will also be available. There will be an opportunity to ask questions after the presentations.

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

Please note, this also apply to the conference call and answers to your questions. I’ll now hand over to Thierry, he will start on Slide 4 of the presentation.

Thank you very much Lloyd. Hello, and a very warm welcome to all of you on the call.

Life, here in Amsterdam, seems to slowly return to a sense of normality but we do realize the situation is very different in other parts of the world. So I sincerely hope that you and your loved ones are safe and well.

As to now, last week on Monday, market headwinds related to COVID-19 eased for Akzo Nobel during the second quarter, starting the quarter with a revenue, 30% lower in April, before moderating to a revenue 20% lower in May, and finally 5% lower in June. Despite these challenging circumstances, our business return on sales increased 30 basis points to 14% for the second quarter, due to strong margin management and cost savings.

The total cost savings that we delivered were €116 million of which €38 million were structural cost savings related to our transformation initiatives. Our strict temporary cost saving measures delivered €78 million during quarter two.

We have been able to maintain a strong balance sheet due to rigorous cash management and robust working capital controls while using some of our balance sheet strength to ensure supply or support customers throughout the period. Our net cash from operating activities more than doubled to €308 million compared to €150 million last year.

These results put Akzo Nobel in a sound position to deal with the continued uncertainty from COVID-19, as we strive to deliver powerful performance as a front runner in our industry. I am extremely proud of our teams around the world.

They've continued to focus on serving our customers and delivered this resilient performance while also helping many communities around us affected by the pandemic. The agility of our teams to respond quickly to the sudden changes in end market demands has been truly impressive.

Some key financial highlights are shown on Slide 5. Our recent results show how we are weathering the COVID-19 storm.

As mentioned, our return on sales excluding unallocated costs increased to 14% versus 13.7% for the second quarter of 2019. Return on Investment, excluding unallocated cost and invested capital, was also up at 17.4% as compared to 16.5% last year.

The price mix was 2% higher due to our continued focus on margin management. Free cash flow increased 147% for Q2, demonstrating how we've been carefully managing cash and working capital.

But just as earnings per share from continuing operations was up 8% at €1.51 for the first half of 2020 and we've maintained a very strong balance sheet with net debt/ EBITDA leverage ratio of 1.4 times at the end of June. Slide 6, shows how market headwinds have eased during the quarter.

Demand for Decorative paints rebounded strongly in Europe, and faster than company planning assumptions. By the end of the second quarter, China has almost recovered to previous levels, although other regions continue to be impacted by various degrees of lockdown, especially India and South Asia, and some places in South America.

As expected, demand for Performance Coatings continued to improve during the quarter although remaining significantly below the previous year, especially for automotive and aerospace related markets. Now turning to Slide 7.

COVID-19 will continue to impact the second half of 2020, although more than ever maybe, demand trends differ per region and segments in an uncertain macroeconomic environment. Looking forward, we extrapolate the current COVID-19 situation as a basis for our planning assumptions.

Demand for Decorative paints has rebounded strongly in EMEA, supported by the reopening of distribution channels, especially for the Do-It-Yourself segment. In China, demand for Decorative paints has almost recovered towards previous levels.

While demand for our Industrial Coatings business has been lower overall, positive trends continue for the Packaging Coatings segment in that business. Powder Coatings continues to be impacted by lower demand from the automotive industry and volumes for Marine & Protective Coatings remain lower, with demand for Protective Coatings impacted more than Marine Coatings.

Demand for Decorative paints in South East and South Asia, has been heavily impacted by market disruptions due to the lockdown of distribution channels, particularly in India. This has also been the case for South America for most of the second quarter.

Automotive and Specialty Coatings continues to be the most affected business by the impacts of COVID-19 and market demand remains depressed, particularly automotive and the aerospace industries. While we expect Vehicle Refinishes to recover mostly by end of 2020, we believe the automotive and aerospace markets may take until 2022 to fully recover.

Moving now to some of our key actions and achievements as shown on Slide 8. We've continued delivering strong margin management with price/mix up 2% for the quarter.

In March, the significant market disruption from the pandemic forced us to pause key parts of our transformation, especially the ERP integrations, and major global business services transitions. We're now selectively restarting key parts of our transformation.

The global weekly demand and supply cycle put in place for COVID-19 will be incorporated into our Integrated Business Planning process going forward. This will allow us to respond quickly to changes in end market demand as that proved very useful during the second quarter.

It was instrumental to manage both cash and supply during an exceptionally uncertain period in April and May. Our improving systems platform facilitated up to 14,000 Akzo Nobel employees or roughly 40% of our workforce to work remotely without interruptions during the second quarter.

The steps we've taken to rapidly reduce cost, delivered €116 million cost savings during the quarter of which, as earlier mentioned, €38 million were structural savings related to our transformation initiatives. From a procurement perspective, with a demand and supply balance, complex and constantly evolving, we've successfully worked together with our key vendors to secure supply in these challenging circumstances.

During recent months, we extended our Paint the Future challenge to employees to capture some of the collaborative innovation taking place in response to COVID-19. We received nearly 200 submissions from colleagues around the world, of which we start implementing the key winners, in the second half of this year.

And last but not least, I'm proud to confirm we received the highest possible ranking from MSCI, a AAA, for the fifth year in a row in recognition of Akzo Nobel being the industry leader when it comes to environmental, social and governance performance, ESG. We will continue to lead the way when it comes to sustainability in paints and coatings demonstrated by our recently announced ambitions to become a zero-waste company and cut carbon emissions in half by 2030.

I'll now hand it over to Maarten, who will run us through the financial results in more detail from slide 10 and onwards.

Yeah, thank you, Thierry and hello, everybody on the call. In the second quarter, revenue was 19% lower and 17% lower in constant currencies, with positive price/mix of 2% more than offsetting the 18% lower volumes.

Adjusted operating income was €238 million, with strong margin management and strict cost saving measures helping to compensate for lower end market demand. This resulted in a return on sales, excluding unallocated cost of 30 basis points higher at 14% for the second quarter of 2020, despite the significant market headwinds from COVID-19.

Operating income of €207 million includes €31 million negative impact from identified items related to transformation cost. As a reminder, operating income in the second quarter of 2019 included €3 million positive identified items.

Moving over to Slide 11, which shows the quarterly trends in volume and price/mix. Our strong focus on margin management is delivering although volumes were significantly lower due to COVID-19.

Price/mix was 2% positive for the quarter mainly resulting from price increases implemented earlier in the year. Although market headwinds eased during the second quarter, volumes were 18% lower overall.

Market headwinds were strongest during April, when revenue was almost 30% lower compared to 2019, revenue from May was around 20% lower, and June was nearly 5% lower compared to the same months of last year. Trends differed significantly per region and segment, with volumes 10% lower for Decorative Paints and 23% lower for Performance Coatings.

Now moving on to Slide 12. Adjusted operating income was €38 million for the second quarter compared to €305 million last year.

Foreign exchange rates had a negative impact of €8 million in the second quarter, mainly due to significant currency devaluations in South America. Margin management and various cost saving measures helped to compensate for the €242 million impact from lower end market demand as a result of COVID-19.

Positive price/mix contributed €39 million while raw material and other variable costs were €32 million lower. Structural cost savings related to transformation initiatives delivered €38 million and strict temporary cost saving measures added €78 million resulting in a total of €116 million cost savings achieved during the second quarter.

Moving now to the second quarter results for Decorative Paints. Revenue was 10% lower and 6% lower in constant currencies, with 4% positive price/mix more than offset 10% lower volumes.

Adverse impact from currencies was mainly related to significant devaluations in South America. EMEA delivered a particularly strong performance as demand rebounded during the quarter supported by the reopening of the distribution channels, especially in the DIY segments.

By the end of the second quarter, China and Vietnam were also returning towards previous levels. However, other countries in Asia continue to be impacted by varied degrees of lockdown, particularly in India.

In South America, the lockdown of distribution channels for most of the part [quarter] resulted in lower volumes. Strong focus on pricing initiatives and cost control partly offset adverse impact from foreign currencies.

Adjusted operating income increased with 29% to €175 million, driven by positive price/mix and cost savings, more than compensating for lower volumes. Now moving to Performance Coatings on the next slide, revenue was 24% lower and 23% lower in constant currencies, mainly due to lower volumes for all business units as a result of COVID-19.

Automotive and Specialty Coatings was most significantly affected by lower demand from automotive and aerospace industries. The volumes for Powder Coatings were also lower for the automotive industry as well as due to lockdown of distribution channels and construction activities.

End market demand for Marine & Protective Coatings was more heavily impacted for Protective than Marine Coatings. Industrial Coatings was least affected due to continued positive demand for packaging coatings as well as coil coatings in North America while demand for wood coatings remained subdued.

And overall, adjusted operating income was €103 million compared to €197 million last year, as margin management and cost savings were more than offset by lower volumes. Now turning to Slide 15.

Profit from continuing operations was €134 million and net income attributable to shareholders was €129 million, resulting in adjusted earnings per share of €0.80 for the second quarter. For the first half year 2020, net income attributable to shareholders was €243 million and adjusted earnings per share increased 8% to €1.51.

Outstanding share capital was 193 million common shares at the end of June 2020. Moving now to Slide 16.

During the second quarter, we maintained a strong balance sheet due to vigorous cash management and robust working capital controls. Free cash flow increased with 147% to €262 million from €106 million last year.

Net Cash from operating activities resulted in an inflow of €308 million for the second quarter, up from €152 million for the same period in 2019, mainly driven by the inflow of working capital. The increase in net debt from €0.8 billion at year end 2019 to €1.7 billion at June 30, 2020 was mainly due to a share buyback and the final 2019 dividends.

This resulted in a net debt/EBITDA leverage ratio of 1.4 times. At June 30, 2020, cash and cash equivalents were €1.2 billion.

In addition, we have a €1.3 billion unutilized revolving credit facility with a maturity of 2025. The next bond maturity is €750 million in July 2022.

Overall, we target a leverage ratio of net debt/EBITDA of one to two times, by the end of 2020 and remain committed to retain a strong investment grade credit rating. With that, I hand back to Thierry for some concluding remarks.

Thank you, Maarten. On Chart 18, you'll see that despite lower end market demands, our business return on sales increased 30 basis points to reach 14% for the second quarter, as a result of the continuous focus on margin management and our cost saving measures.

Our rigorous cash management and strong balance sheet put us in a sound position to deal with the continued uncertainty from COVID-19 as we strive to deliver powerful performance as a front runner in our industry. And I can only repeat that I'm extremely proud of our teams around the world, who have continued to focus on serving our customers and delivered resilient performance while also helping many communities affected by the pandemic and all of that in very adverse situations.

Finally, turning to Slide 19 which shows our updated outlook. Akzo Nobel has suspended its 2020 financial ambition in response to the significant market disruptions resulting from the pandemic.

COVID-19 will continue to impact the second half of 2020, although demand trends will differ per region and segments in an uncertain macro-economic environment. Raw material costs are expected to have a favorable impact for the second half of 2020.

Continued margin management and cost saving programs, in the meantime, are in place to address the current challenges. We target a leverage ratio of one to two times, net debt over EBITDA by the end of 2020 and commit to retain a strong investment grade credit rating.

And with that, I'll hand it over to Lloyd for information about how we're going to conduct the Q&A session. Lloyd?

Thank you, Thierry. This concludes the presentation and we'll be happy to receive your questions.

Please state your name and company clearly when asking a question and limit the number of questions to two per person so others can participate. Operator, please start the Q&A session.

Good morning, everybody. And thanks for taking my two questions.

Tony Jones from Redburn. Firstly, could you talk a little bit about the divisional volume trends and how that's looking into Q3 and is the recovery you show on Slide 6 continuing or accelerating?

And then on the temporary cost gains on the EBIT Bridge, that was a big number in the quarter nearly €80 million, could you help us understand a bit more how much of this relates to volumes, so could quickly get appear as recovery comes through? And how much of it could be a bit more sticky so discretionary spend that you've now found that you can live without?

Thank you.

Yeah, thank you Tony. What I suggest is that I'll take the volume trends and then Maarten if you do the cost, so that's how we split up the work around here.

On the -- on the going forward into the third quarter, Tony, you'll probably appreciate I'm not going to give any forward guidance because there is ongoing uncertainty, flare ups, threats of lockdowns, etc., around the world. So I think it would probably not be wise to give forward -- forward looking.

But I can definitely describe the volume trends in the second quarter and then I think you guys can extrapolate what that would mean for the third quarter. If you look at the volumes, I think there is obviously a big division or difference between on the one hand Decorative Paints, and on the other hand Performance Coatings, so maybe it's good if I focus in a little bit on Decorative Paints in some detail.

Let me start with what the downsides were in the second quarter and where they were at the end. Definitely Latin America started extremely dire situation in the beginning of the quarter that actually subsisted for almost two thirds of the quarter, with only I would say, near the end of June, having places like Brazil and Argentina coming out of really strict lock downs.

In Brazil, specifically in the urban areas, which is the big business part for us, so they were coming out of it but that was really depressed during most of the second quarter. On the -- also the more depressed part of the spectrum in Southeast Asia, somewhat of a similar pattern, I would say that India continues to be a challenge because there specifically in the urban areas there is still quite some lockdowns happening.

So India is in Southeast Asia, behind. But if you look at the other two, I would say, important countries in that region for us, Vietnam and Indonesia, they're definitely looking up as we came out of the quarter.

China, we’ve commented on that, Deco China was almost back on previous year's levels, pretty good dynamic. And as far as I -- as we can notice, the Beijing flare-up seems to be under control.

The flooding that is happening in parts of the country seems to have little impact on it, so we expect that, in fact China is getting increasingly to business as usual, for what Decorative Coatings is concerned. The biggest, I would say, wildcard in the second quarter was Deco in EMEA for two reasons.

One, the professional market head started out for us pretty strongly in the first quarter. Already we commented back on that that we were -- as the market leader, we were also riding pretty strong in the first quarter for the professional markets, which means the painters who come at your house or in a commercial building to paint.

That continued, albeit that in the residential area, it went more for external paint probably because people were locked down in their house, they felt it was the right time to do something but not necessarily want to have a group of painters in the house. Sounds a trivial comment but for supply chain, it was a big challenge because you go from wall paint to mostly now wood trim and metal coatings on the outside or facade paints, which supply chain wise is different products.

Do-It-Yourself, in Northwestern Europe was significantly up. So obviously the lockdown in terms of the house improvements which you see in other market segments related to house improvement, they were definitely going strong.

And that has continued, as you'll see in our chart, through the end of the second quarter. By the way, if you ask guidance for the third quarter, I would like to have guidance from my business guys also on the third quarter because it all really depends on, is there going to be a Northwestern Europe?

Is it going to be more staycations than going on travel? Are people continuing to stay more at home?

Are people going to take vacations? There are some countries who talk about maybe they shouldn't take that traditional vacation periods etc.

So the only thing that we could respond to, is having a very agile way of supplying products, which has been quite challenging giving the wild rise we had. So on Deco, I think Tony, if you -- I hope you accept that I only give you the dynamics as we got out of the quarter and then you can extrapolate, I think what it would mean for the third quarter.

Moving to Performance Coatings, there you have a very big spread on how things, an equally big spread. As we commented before, not surprisingly, markets that are related to automotive and aerospace are significantly depressed, they’re probably the most down in the portfolio.

Again for us, aerospace and automotive, the total exposure for us is in the -- yeah, I would say somewhere between 10% and 20%. So it's somewhat overseeable.

But definitely it has an impact. We did not expect that necessarily to change significantly in the third quarter.

And effects for aerospace, if you look at all the experts, their comments, they see that more coming back even late in ’21 or even in ’22. So we'll just have to deal with that.

It gives a big mix change in our Performance Coatings business. If you then go to Powder Coatings, I would say, except for the automotive part where we’re supplying typically at tier two or tier three suppliers.

So we have the whiplash of the stop-and-go in the supply chain. Except for that, actually things were very much picking up as usual, near the end of the quarter, so that was very positive.

If you go to Marine & Protective, we commented on that in the prepared comments earlier on in this call, where Marine is more or less steady as it went with some differences in region. In Protective, we've seen a bit of a hold probably also people in the customer level managing their cash.

We do believe that on the MRO part of it though, that might actually be coming back. And most of our exposure in Marine and in the Protective business is related to natural gas and long-term projects.

So these are ongoing because they're really going through the whole cycle. So don't expect big changes there.

Then last but not least, if we go to our Industrial Coatings business, there I would say, you have different variations. Packaging business continues to do very well, that's a combination of that industry doing very well but also our -- well we believe as an increase in share based on the customer service and based on new technologies that we've launched forward.

So there we've remained pretty optimistic. Wood coatings continues to be where they were, that was a market that was somewhat impacted, given the China, Southeast Asia, U.S.

situation, that hasn't changed necessarily. And if you go to then the coil coatings market, was relatively robust overall globally, although there was quite some -- near the end of the quarter, although there were notable regional changes.

And then, now do we expect big changes in those in those trends? No.

The big question mark for us is, is there going be a lockdown? Is there a second wave?

Is there flare ups? So we will continue to have the same management principle as we had during the second quarter, very conservative on costs and that is at the bridge to Maarten.

But at the same time, also having the weekly supply demand with quite significant changes week-over-week on what product we make, where, so that we can keep supplying our customers. Maarten, maybe you want to comment on the cost.

Yeah. Yeah, on the cost savings, as you've seen, €116 million total cost savings €38 million really structural and related to our transformation.

And that's basically very much tracking against the €120 million cost savings for this year or tracking against the total announced €200 million for last year plus this year. As you mentioned, €78 million more cost savings of a temporary nature.

If you kind of unpeel this, the big buckets, is clearly travel and entertainment. Clearly there is very limited travel, so that is one area.

The second area, we've also clamped down on advertising and promotion, given the state of some of the markets. The third area is really around temp labor, third party labor, consultancy spend, etc.

So we have been really in a mantra to basically clamp down on any discretionary spent. And then last but not least, as you said yourself, of course there is also some volume, linked to volumes which is mainly in our distribution and warehousing cost but the earlier three buckets are really the big buckets.

Going forward, we will manage debts in a very, very flexible way. So we will flex our cost as we go along and depending how the business will evolve, so executing on €120 million cost savings, and be flexible on kind of the discretionary spend, where -- where required and where needed.

Does that help, Tony?

Yeah.

Yeah, maybe Tony, if you allow me to do one additional comment, so you know that at the end of ’18, early ’19, we announced €200 million cost saving program. You may remember we did €80 million in 2019, we said we still had €120 million to do.

And in fact, I think despite us announcing, we stopped key parts of our transformation, I think we were very encouraged that we are almost exactly halfway coming on the €120 million to do, so we remain on track on what the cost is concerned.

Thank you, that’s really detailed answers, I appreciate that. Thank you.

Thank you.

Hi, good morning, everyone. My question is on the raw material costs please.

You had €32 million benefit in Q2, which is less than you had in Q1, it was €50 million at the time. So what's -- what's changed that this tailwind has reduced somewhat in size?

That's the first part of the question. And the second one, if you could help us a little bit with what your planning assumptions are, given that you have certain inventories, you have certain procurement contracts, what -- and what raw material costs you're expecting for the remainder of the year?

Thank you.

Yeah. And Gunther, thanks for the question.

On raw material, indeed that €32 million for the second quarter and indeed, as you said, €50 million for the first quarter. I think a few elements play a role here.

First of all, in the second quarter, this is obviously related to raw material pricing by the end of last year, which is flowing through our P&L. But I think is more -- even more important, we compare here the second quarter which has a lot of dislocations, we compare to the second quarter of 2019 with also a significant different mix.

So just to kind of extrapolate the first quarter to the second quarter, where the second quarter has significantly different mix and different volumes that is impacting the €32 million basically go in raw material savings. Now, if you move forward for the second half, we've said that we still see a favorable environment from a raw material perspective.

That is based on the development of raw materials which we've seen in the first half. Although I think it's also good to mention here that we've also seen and managing quite some supply and demand kind of disruptions and dislocations which sometimes also leads to higher costs.

So it's not kind of a straight line going forward. But again, we foresee still an unfavorable environment for the second half.

It's important, Gunther, by the way good morning, but it's important indeed to stress also the volume part, don't underestimate the volume part. So by definition, the total amount of savings on raw materials is already impacted quite significantly by the volume.

We did indicate in our outlook that we do expect some favorable impact from raw materials going forward, maybe just to add to what Maarten said, two dynamic there. One, yes there is less demand in the market, so that always has a favorable impact on raw materials for what we are concerned.

Secondly, though, we do see quite some disruptions in supply chain, where some of the step downs, for some of the raw materials that are related to us are stepping down to such an extent that some people take out capacity. So that's why we are guarded optimistic because there's quite some dynamics playing out there.

Does that answer your question Gunther?

Yes. Thank you.

Thank you. Thank you so much, both.

Thanks.

Yes, thank you. Christian Faitz from Kepler.

Good morning, Thierry and Maarten, Lloyd and team. Two questions, please.

First of all, what is the nature of the €31 billion transformation costs? Is that, for example, consultancy fees and new IT system implementations?

And the second question, in Deco, I remember your DIY professional mix tends to be 50/50 in a normal year. So, what was the waiting in Q2?

Was is more like 60/40, 70/30, in terms of demand trends? Thank you.

Yeah, thank you, Christian. I suggest Maarten you take the first question.

Yeah. Christian, on the €31 million transformation costs.

So, this is mainly related to transitions which we already started in the first quarter and continued in the second quarter and is mainly related to the finance transformation transitions to our Global Business Services. Secondly -- the second part is related to our footprint optimization and the actions which we continued in that area.

And again, there is also -- this is otherwise the structural savings which we just discussed.

Yeah.

So Christian, let me talk about the -- because I think your question was around the percentage of the size of DIY in our Deco business. Maybe taking two steps back so that we all keep ourselves on the same page.

If you look at our Deco business, the DIY is actually only a European phenomenon, largely. I mean, the rest of the world they actually either they buy their paint to bring a painter in but DIY is really a European phenomenon, not even EMEA but European.

If you go, you're right, the DIY is 40% in EMEA, so I just want to point that out. 40% of the euro -- of the European business is indeed a correct assumption for do-it-yourself.

Now, if you really want to get really more specific, I would say 40% is a truly do-it-yourself. You and I get into the car and drive to the store or whatever or to a big box and we buy our paint, 35% is the professional business, and then you have in the middle you have a 25% of what I would say, a kind of an hybrid zone where this -- it's called the buy-it-yourself, the consumer goes alone or with a painter buys the paint and then the painter puts it on.

So that has some of the characteristics of do-it-yourself but is a little different sometimes. So that is probably the best description of how the market is structured.

Again, this applies for EMEA which is let's say about half of our business worldwide, in Deco.

Okay but it would be fair to say there was a significant shift in Q2 in EMEA towards DIY, right?

Well, DIY was strong, so I think that was actually up. But having said that though, don't underestimate the professional business.

They are actually doing quite well. I alluded to some of the changes of being in-house, out of the house but the professional business in Europe was actually pretty strong from the beginning of the year.

But yes, I mean, given the situation, the percentage, I don't have the exact percentage here at hand, but you would say DIY was probably a couple of percentage points higher.

Okay, very helpful. Thanks, Thierry.

Hi, morning. Thank you for taking my questions.

Just two, please. And the first one is on the price/mix dynamic within Performance Coatings.

Just wanted to get your comments on how you expect that to trend going forward, given the low volumes at large customers who know that your raw materials are coming down. So I just want you to get your kind of feel of how you see that trending forward?

And then the second question is more around the sustainability of the free cash flow. It was particularly good in the second quarter.

And how should we think about that going forward into the second half? Do you expect to hold on to the kind of gains that you've -- that you've seen in the second quarter?

And then, if I could squeeze one in for -- on cost savings again. Would you be able to provide any comments on, given that you're at 50% of €120 million by 2Q?

Is that 15 by 20 still delayed? And are you still planning to achieve the €120 million of cost savings in 2021 or is there potential to complete that earlier?

Thank you.

Yeah, all right. So let me maybe -- well, let me tackle the last question first, and then I'll do the price/mix and Maarten if you can do the free cash flow one.

On the cost savings, yes, I mean, when we said we were hoping parts of our transformation that was more on pure logistically. Given that an ERP rollouts around the world is a bit difficult to do over the phone, although Maarten’s team was able to do that in Egypt, completely virtually, but I'm not sure that we can do that everywhere, necessarily.

The big transitions for our Global Business Services with training, handovers etc. to centralize the task, that -- this was obviously pretty difficult to do in the second quarter.

But as you indeed see from our cost saving, in our structural cost savings, the underlying drive together -- our cost structure, much more performance and much more aligned with what our company should have, that has gone on without any issues. Now, coming back on the 15 by 20, we paused that.

There was two reasons for that. Not that we didn't feel like 15 was impossible, but we would have done -- had to do it with really strict impact in the organization, given that the top line was going to be under pressure.

We didn't think that was in the medium interest of the company. And in fact, that has helped us quite a lot.

Because if, again, the supply chains have been wildly swinging. So sometimes you had people sitting at home, which we had to call the next morning to come in and actually do overtime in certain plants.

So by having -- the approach we took to keep as many of our people in the boat was probably the right approach, also business wise for what we did. But of course, and since this COVID-19 impacts us in the full big quarters, the second quarter, okay, the 15 by 20, we said, “look, we'll see where we come out.”

And frankly, the second half of the year, that will have some uncertainties with further flare ups, lock downs, etc. So that's why we continue to say that we suspended our 15 by 20 guidance, but in that sense, you see that with the 14% this quarter, we don't -- we don't stop pushing for the maximum number we can achieve.

So that's on the cost savings. On price/mix, the number is probably less telling than otherwise because there's big mix swings in that.

If you have businesses like vehicle refinishes, it tends to have a relatively high sticker price. If that becomes less in your portfolio, you start having all sorts of shifts happening.

So it's a number that really is not that easy to interpret. On price, price I think we held very firm.

Now your question was around bigger industrial customers. I do believe that that has been relatively well managed by our teams so far.

If there were more pressure? As we've indicated already before, we are holding quite firm but we definitely -- that was part of the reasons to focus more in some segments on margin management to really go to what is the margin we generate.

And there are certain contracts that actually are related more directly to raw material, but I do not expect a major shift there, if that is your question. And by the way, in Deco you did another question.

In Deco, I think we seem to be increasingly successful to decouple raw material dynamics from our pricing in the market, which I think is a very positive trend that we have there. Maarten, maybe you want to talk about the free cash flow question.

Yeah. Yeah, on the free cash flow -- free cash flow, first of all was strong in the second quarter despite the fact that, of course we've seen working capital running upwards.

You've seen a 17.4% at the end of the second quarter. Specifically receivables, we saw during the quarter, quite an uptick as we have, in a number of cases extended our terms to support our customers and also customers who were not able to pay because of lockdown, etc., etc.

That has been trending down, again, by the end of the second quarter but we still see the impact at the end of the second quarter. So for the second half, working capital remains a key focus area specifically focusing on getting receivables back on track again, I would -- I would say.

So there is no reason to not expect continuous, strong free cash flow, although I'd like to mention here that we had in the second quarter some deferrals of kind of tax and VAT, Social Security payments, which will flow from the second quarter into the third quarter.

Does that answer your question?

Yes, really good. Thank you very much.

All right, thank you.

Hello. Just a simple question on the COVID-19 scenario discussion in the Q2 report, what's the -- how much of your experience and forecasts went into the 2021 to 2025 growth assumptions that you used as a base case?

And how do you think about your degree of confidence in that -- in those assumptions or the degree of conservatism embedded in them?

Yeah, so that is indeed related to the goodwill impairment testing. And what we've done here is basically taken an assumption on GDP and used that in the model for the goodwill impairment testing.

And I think it's fair to say that when you do these goodwill impairment testing, you stay at the conservative sides.

Thank you.

Oh, yes. Good morning all.

And my first question is on inventory levels. Could you give us a bit of a tour around different regions that they go and different businesses in terms of inventory levels in the channels?

And then the second question on capital allocation? Could you talk -- I think last time on the Q1 call, you talked about, I guess, the need to have more visibility on the shape of recovery and how you would manage in the crisis to think about buy backs on one side and M&A on the other side.

I was wondering if you could give us a bit of an update on that side. And any updates on the M&A pattern as well would be appreciated?

Thank you.

Yeah, thank you Laurent. I think your question was specifically around what's happening in the channels on inventory, correct?

I mean, so did I understand your question, correct, on inventory?

Yes. I mean, you mentioned some destocking I think on the performance side.

Yes, we --

I was wondering where do you think you are now? And on the Deco side, I guess it's more on the retail side.

So I've got experience from the UK side and French side and it's tough to get paint, so I'm just wondering as to where -- how inventories are at this point in time.

That's good. Now, Laurent, you have friends in good places in paint companies, so if you need if you need something, we can out if you need more paint.

But just kidding part, so I think on the on the destocking I mean, and I think that goes in general for both in Deco and in our Performance Coatings, the channels are definitely at the low side of being stocked, I would say. Now, in certain places, of course, the comment you just made anecdotally on finding paint, is probably very specifically in retail in Northwestern Europe where there has been a bit of a run on paint.

So that is definitely pretty, pretty noticeable. If you go into the rest of the world, we do monitor.

In Deco of course the sell-out to customers and then the sell-in from us and that seems to be either the selling-in is still kind of kept. It's more or less synchronized.

So -- or there is even a little bit of restocking happening, as we speak, so I think it's pretty stable. So, so that's good.

I think people have been managing and also in our customer level, have been managing their stocks and their cash. So I think it's pretty natural that there is a bit of a replenishment over time happening, but I would think that's going to be a minor effect, in up or down in our numbers.

The same is actually in Performance Coatings, although the Performance Coatings is different, most of it is direct sales, so that goes pretty quickly. So there actually for us inventory effects are much less.

Does that answer your question on the first part, Laurent?

Yes, yeah.

All right. So Maarten, you would have the --

Yeah, on capital allocation? Yeah, basically, I want to reconfirm our capital allocation priorities where we focus first and foremost on our organic growth and of course on our CapEx deployment, our dividend policy which is stable to rising.

M&A, we keep on looking at M&A opportunities, specifically M&A bolt-on opportunities. Although, fair to say, that would be coming more towards the end of the year where we might see some opportunities coming up, so to be seen.

And then last but not least, if there is still cash available, we will obviously return that to our shareholders. While again, in these uncertain times, it's also important to keep flexibility.

But again, we have reconfirmed to move to a leverage ratio of one to two by the end of the year.

I also hope Laurent that you also understand that the third quarter is still with lots of uncertainty, if you read the headlines on where COVID-19 goes. So that's why we actually want to be a little bit more conservative in these months to take any position on these things.

Understood.

Does that answer your question Laurent?

Yes, and absolutely. Thank you.

Yes, so, good morning everyone, and thanks for asking two questions. Two questions on the paints in the EMEA.

The first one is, can you talk a little bit about the volume decline in the region and the differences between the various countries or the major countries? That's the first question and then secondly, it seems that your price/mix was up significantly in the quarter, which is impressive in my opinion.

Can you split out how much of that is price and how much of that is mix? Thanks.

All right, good question. Let me tackle the first one and Maarten maybe you do the second one.

On paint in EMEA, you have all shades you want to have from country-to-country. But if you say in, I would say the old-fashioned definition of Europe, I would say the difference between the North and the South.

In broad terms, in the South Spain, France, Italy, actually, some of the channels were completely closed -- stores were closed for a big part of the quarter. So there you saw e-business taking off quite a lot, although still being a relatively smaller percentage of the total volume.

And then when the store opened, you really saw a spike in material coming up and a spike is an understatement. It was actually from zero sales because they were close to really trying to catch up with an increased demand.

So that was actually pretty big. If you look very specifically for countries closer to home here, the Netherlands, Belgium, the UK, France, you saw similar patterns.

France was much more the Southern European with quite some closures. And then actually take -- picking back up.

The Netherlands never really closed the shop, so that was just strong throughout. Belgium was down and then stepped up quite a lot.

And in the UK, in the early parts of the quarter there was -- it was not a mandate, but I think most of the big customers had shut down their stores. But they restarted quite strongly then somewhat as of the middle of the quarter.

So in that sense, there was all differences around it, but the common pattern was definitely the do-it-yourself was very strong and whereby the professional business was actually for external business doing quite well too. And that was a continuation of the first quarter.

Does that answer your question on the first one?

Definitely, thanks.

All right, Maarten.

Yeah, so on the price/mix maybe first a step back. Overall price/mix was 2%, €39 million and that is mainly price.

And as we said, we have kind of with our pricing initiatives, we have increased our prices 1% to 2% early on in the year. If you then look at the dynamics in Deco and in Coatings, Deco, the 4% price/mix, there is clearly quite a significant mix impact and it is driven mainly by EMEA.

As Thierry earlier mentioned this, so I would say more or less in Deco, its half-half a price/mix. But on the other hand if you then take Coatings and Thierry commended early on this division and significant negative mix impact and that gets down again, total to the 2% price/mix, which is mainly price because the mix basically is evening out between the Deco and the Coatings part.

I hope that helps.

Now that’s very clear. Thank you.

Hello, good morning, Thierry, Maarten and Lloyd. Firstly on M&A on the on the bolt-on deals, are you finding potential sellers willing to engage in negotiation?

Or are they stepping out of the market because their own businesses probably been performing quite poorly recently? And secondly, just focused on raw materials, you talk about the benefit in the second half which I assume is a year-on-year benefit.

Can you actually talk about why do you expect raw material cost to be low sequentially after adjusting the volume and mix in [liter]? And then this isn’t really a question, it’s more a clarification.

And Maarten could you possibly tell us, how much the tax deferral impact was on free cash flow in the second quarter, that would be great. Thank you.

Thanks. Thanks Alex.

I mean there was a little bit of static on the line. So we hope we get your questions right.

So first of all, was around M&A, I think the willingness of the unwilling for bolt-ons to engage. I think the other one was around the raws sequentially.

How does it look, if you get it -- I think you almost asked it liter-per-liter, I think for us, and then the tax deferral? Let me tackle the M&A one, there is a little bit more noise around potential bolt-ons that might be, from our perspective, that might be willing to engage on conversation.

It's a bit early though, because everybody probably was hunkered down in getting their operational model functioning. And it's not always clear yet, is it really coming from those companies in certain cases or is it an investment banker who gets overly enthusiastic on what might happen?

But we do expect that there's going to be a little bit more companies looking at, is this the place we want to be etc. So on the one hand, it has indeed been a very wild ride and depending on where those smaller paints and coatings companies are sitting, they may be more impacted in the segment or the country or the geography they are in.

So that obviously, yeah that creates a bit more natural conversations for people we have been contacting over a while, whether and if etc. So that helps.

On the one hand, I think we have a relatively good chance there because I think we have a pretty good record on integrating bolt-ons and actually trying to keep the best from the company we take over but then plugging it into a larger group that may have some other efficiencies from scale. And at the same time, I think there is a bit of a reluctance from those owners because they feel in certain cases.

Their business is down, so this is not the right moment to sell. I think in the anecdotal context, it is clear that we understand the markets they're operating in.

So I think we can see through on how to extrapolate their past performance on what that might be in ’21 and going forward. So in that sense I think that doesn't -- that does give a ground for having at least some initial context.

Now, in the second quarter, those things came up and I think we’re very much looking at our operational model and staying very vigilant. We have our -- we commented that, we have our list of targets that actually would help us in our segments or in specific markets.

And that is actually the line that we try to stick to pretty, pretty vigorously. Maarten, you want to talk about the --

Yeah, on the raw materials, yeah, I commented on that already earlier. Basically, what we see right now in the first half is really the pricing at from the end of last year.

And earlier, I think that was more earlier this year, based on what we at that moment saw, we didn't expect any significant favorability in the second half. But given what we've seen in the development of raw materials, we flag now that we see a favorability in the second half, again, comparing to the second half of 2019.

Sequentially, I think is very difficult to comment, given the continuous mix changes we see at this moment in our portfolio. So I would like to refrain to comment at this stage and make any predictions.

But again, we will see a favorable effect versus last year in the second half. On the deferrals of the tax payments, I mean, we've not -- we've not specified this, but I just wanted to mention that there are, if you look at our cash flow, there are of course shifts from the second quarter to the third quarter.

I mentioned, what happens in working capital with our receivables and there are also some sort of are a number of pluses and minuses which play through and I just wanted to flag that.

That’s great, thank you so much.

Yes. Good morning, everyone.

Thank you. I got two questions.

First one, is the stories about Dulux being on ration in [inaudible].

Peter I'm sorry, you're breaking off.

European Deco markets?

Your line is breaking up.

I'm just wondering with your facility now in Ashington, how we can address the Dulux situation in the UK. This demand pull you’re seeing in your Deco in North and Western Europe Deco, how you can address that, certainly within a facility like Ashington?

I understand the demand pull was so extreme that it meant the stocks are falling back sharp, just wondering. And then the second question your comments about not seeing recovery in auto and aerospace ’20 to ’22 specifically where we finish business given the density of traffic certainly in Europe seems to be picking up back towards normal in a lot of places.

It’s just well, if that refers to auto refinishes well on the finishes well on sort of prolonged recovery? Thank you.

Okay, now Peter, I think we -- you were going in and out and there were some -- so I'll have to guess what you asked, so just tell me if I’m answering a different question but will try to do best. I think you talked about availability so what you see that, here and there, like in the UK, Dulux may not have been that readily available for a period of time.

And then how does it sit for our units like Ashington, etc. Now we did, it has been a wild ride.

So it was a whole story of trying to manage working capital on the one hand with customers who said they were not going to buy material to then going to, oh, wait a minute, we were just kidding. We are going to buy and we're going to buy much more than we ever did before.

So our supply chain organization, manufacturer organization went on a bullwhip, which was pretty, pretty impressive. To be honest, if you look at capacity -- installed capacity, it is a spike and that’s always difficult to get people out of the lockdown back into plants etc.

But it was actually the bottom line is not so much also can we can we make the paint and have it available, the whole supply chain on packaging, raw materials etc. has to follow on those spikes and you have to have it in the right spot at the right time.

So if you then look to the whole supply chain, I think for a while people were stopped and then all of a sudden had to go to a much higher, much higher production than they ever had before. So that explains the big, big changes there.

So our installed capacity like a plant in Ashington could cope with much higher demand but now that is of course functionally going from zero to 100 and then the supplies can't follow. So that hopefully I'm answering the question that I think you asked on the availability of material.

The other one is, I think you referred to my comment about auto and aerospace. I think on aerospace, of course, it's not so much the passengers, but it's the amount of flights.

So that comes back, then you have to do the MRO. The OEM market may be a bit longer impacted.

So that was the basis of my comment. On OEM, I think there's people on the line who’d probably also look at the same stats for OEM builds, as we're looking at.

So I think my comment was pretty coherent. For vehicle refinish, you're right.

It is linked the repair market for cars is directly linked to miles driven and density of traffic, that was down quite significantly. That is starting to come back up.

And that's why I think I made a comment that near the end of the year, we do expect vehicle refinishes to get -- maybe not completely back to normal but definitely picking up significantly. So I think there is just a delay because of a couple of months of almost no traffic.

And I think we just have to sit it out in the industry until there is damages coming back in into the market. Now, I hope, Peter that I've answered your question because you were really out for seconds at a time during your question.

Does that answer your question well?

Yes, it did very well. It’s [indiscernible].

All right, thank you.

So thank you. I think you did.

Thanks.

So we go to the principle, you asked what you want, and we answered what we want.

Hi, good morning, and thanks for the call. Just wanted to ask if the comment you made on having to secure supply through the procurement process, what did you have to do to secure that supply?

Does that mean that you had to limit the benefit you may see from your raw materials in the future? Or did you have to lock into longer supply contracts at different prices than you had previously?

It was actually much less a pricing discussion. It was really the able -- is the unit open?

And if it is not open, what is another source where we can get the material? Sometimes we have replacement materials.

So then if one supplier was down, well, okay, can we get the product in the right volume from somebody else? So it had less to do with pricing than actually just getting your hands on the material.

And that has been a very active work stream from our procurement group. In some cases, there was some support needed because the suppliers couldn't get the material or they had to have help with one of their supplies.

So I think it was a much more hands-on work stream. But it didn't really have an impact on cost necessarily, as you mentioned,

Okay, thank you.

Does that answer your question?

Yeah, that’s fine. Thank you.

Hi, good morning Thierry. Good morning, Maarten.

And just see, I’m very --

Hi, Georgina.

Good morning.

I am very excited to be doing this from my desk in the office, so brilliant to talk to you.

Oh.

And yeah, thank you. Thank you for answering all the questions so far.

I've got two left. And so the first one is, firstly, if you can confirm my very back of the envelope maths, you helpfully gave us the impact of the corona virus on the sales of down 18% in 2Q.

And then you also gave us the temporary cost savings of €78 million. So if I strip those things out, that implies that underlying trends would have been up 20% year-on-year on EBIT with a margin close to 20%.

I just wanted to confirm that, (a) that kind of makes sense and (b) is that the kind of level of profitability you've got the organization to and looking at 2021 and beyond? And then my second question is, just to clarify a point.

I think you were quite clear about the price/mix in Deco, but in Performance Coatings, I think talking about mix being very negative, does that imply the actually pricing was positive or at least flat? Thanks very much.

Okay. So Georgina, I think we'll have to temper your enthusiasm on the profitability here, although I think the underlying performance was extremely strong and I think we said that you so that probably also in the first quarter, I think we do feel that the underlying we were definitely on track on the 15 by 20.

But okay, it is what it is. Now, I think what’s not correct in your math, I think is quite dramatic mix shifts that have happened.

So I think that's why it's difficult to just take it as one monolithic block and put it down. So I think margins were very robust, but then you really have to look what's in, what's out.

So although we are extremely positive around the underlying performance, and that we do believe that that bodes well for the future, I think your numbers are slightly over exuberant, I would say. Then the second thing, so sorry for taking your enthusiasm away on your first day in the office but on price/mix for what Performance Coatings is concerned, I think the it is fair to say that our pricing was very stable to also the price-price really has moved at all it is really mix impact that you see there.

Okay, thank you very much, guys.

Thank you.

I think the last question.

Brilliant. Thank you very much guys.

Thank you for the question -- taking the question. Just two last ones.

One, just quantification around the kind of the cost savings. So if I understand correctly, you are suggesting that you're kind of on-track for €120 million, I guess, structural savings.

Just to clarify that, and then when we think about the temporary savings, I guess, year-to-date, you've delivered somewhere close towards €100 million on those kind of temporary savings. Is it kind of right for us to assume that the temporary savings for the full-year ’20 will be in a similar order or magnitude to the structural savings?

Obviously pretty much front-half -- first half weighted bit just trying to get an order of magnitude on those temporary savings, clearly, I guess travel remains limited as we move into the Q3.

Yeah.

So that's the first kind of question around that. And then just on that kind of temporary savings, obviously you said you're kind of looking into where you've learned new best practices and how you can perhaps can try to hold on to some of those.

Do you have any kind of guide or sense of what kind of percentage of those temporary savings you think you should be targeting to keep hold of, you know to 10%, 20%, 30% of that? Or do you think it's just too early to say?

Hey, Charlie, thanks for your question. So first of all, on the being on track for €120 million, that is a resounding yes.

I think that that hasn't changed and that we will be delivering on that. So, that is a clear answer there.

On the cost savings, the temporary cost savings, I would say some of the cost savings will definitely continue during the second half. Now, the rest and I think Maarten you alluded on that, there is advertising and promotion, which in certain cases actually goes together with the volumes and what you do in the market.

So, this is some linearity on how much more you do in the market and therefore those budgets go up. Travel, I think will also start moving up again, but not to the extent probably as it was before.

Now, we alluded to that before that we went this year very strictly for all of the employees in the company to have personal travel wallet, which is actually managed very, very vigorously to the company. And therefore I think it -- we have a view that our travel spend will continue to be significantly below what we did in 2019, probably somewhat up from the second quarter because that was, of course, exceptionally down.

Having said that, I think with the Executive Committee, we really are very vigilant to put the spent in line with what the margin income is, so and that we keep it relative to that and not to start getting into any other situations. Maarten, I know will want to comment on the temporary savings, but I think it's implicit in my answer, I think that some things will trickle through.

We do look a lot and we indicated on this Paint a Future challenge for our employees, where -- which was really focused on, right, we've been doing this now for three, four months. What should we keep on doing?

And a lot of them not surprisingly are travel avoidance, technical service on distance, and which actually are all non-product related spending, that also is, I would say, positively impacted, so less spend that comes out of that. It's probably a little bit too early to put percentages on it.

But I think in the 15 by 20, I would say, Charlie, it's really cheap for us, I would say so we never miss a beat to try to not spend money.

Yeah, just to add, so we remain very frugal, of course. And it's very much also depends how the businesses will evolve.

So when we will see more strength in some of the businesses or some of the geographies we will start to spend, obviously, more advertising and promotion as an example. We will see travel at a certain moment coming back again.

But yes, on the other hand, we will also look together with the executive committee, are there new ways of working and can we retain structurally, retain part of these temporary cost savings. But I think it is a little bit early to say, to make definitive statements around this.

I would just say, Charlie, I mean and maybe a little bit in closing that if you -- I think that that’s what really, it’s something that makes us proud around here in Amsterdam, is the resilience of the company. If you really plug in the revenue numbers that we had in the second quarter due to COVID, if you plug those revenue numbers on the second quarter of 2020, in, for example, the second quarter of 2018, with lower margins, we had a bit of higher cost.

We had, you would see a really dreadful quarter happening. So the self-help, if you look at this quarter, a big part of it has been the self-help that we've been doing in the last two years.

And alluding to the cost etc., that is still very much the mantra. So there is still a lot of self-help in the company to do.

And I think that has proven some of the financial resilience that hopefully, we've been demonstrating in the second quarter. And that's going to be also for us a reality in the second half of this year.

That's really helpful, maybe just one last one and really quickly on pricing. Just as we think about the mix, and you've kind of alluded, that refinish will slowly come back through the year.

You know, it seems like European Deco is -- will be trending positively through the end of Q2, so it should continue for a little bit and you'd expect, there's a bit of inventory pull, etc., into Q3. So just, is it fair to assume now that pricing will remain kind of small single-digit positive for the full year?

And therefore we went through kind of a second half, where it’s going to sequentially meaningfully low, so more kind of a sequentially flattish looking kind of price/mix for the group?

Yeah. Yeah, Charlie I would love to say a resounding yes or something else on that question, but there are so many movements between the -- between different segments and different regions on that.

So if we look at 140 performance cells, they are all kind of moving up and down. So it's difficult to take a definitive statement.

I think definitely what is correct is that we will -- we hold price, so we definitely -- that is clear. And then it's going to be whatever the mix is that comes out.

I mean, I don't know Maarten if you have more of a crystal ball on that.

No but that has -- I mean that has become also part of our margin management mantra where we moved from purely price, managing the margin, but indeed, we will see we'll continue to see kind of volatility in the business and uncertainty which we have to manage basically going forward.

But pricing discipline and that related to margin discipline is definitely Charlie, definitely the mantra internally for the second half also.

Okay, thank you very much, guys. Thank you, very helpful.

Okay, thank you, everyone for joining our Investor Update for Q2 2020 and your questions during the call. A replay of the webcast is available on akzonobel.com.

If you have further questions, please feel free to contact Investor Relations. Thank you and have a good day.

All right, thanks, everybody.

Thank you.