Hello and welcome to Akzo Nobel's Investor Update for Q3 2020. I'm Lloyd Midwinter, Director, Communications and Investor Relations.

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

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

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

Please note this also applies to the conference call and answers to your questions. I now hand over to Thierry, who will start on slide 4 of the presentation.

Thank you, Lloyd. Good morning, everybody, and a warm welcome to this call.

And I sincerely hope that you and your loved ones are also safe and well. As the complex situation regarding COVID-19 continues to evolve, we at Akzo Nobel remain focused on taking care of our employees and serving our customers.

And given that context, we believe we delivered an excellent performance for the third quarter, with revenue growth in constant currencies and increased business return on sales to 17.7%. These results are driven by strong discipline on margins and savings, made possible by the continued commitment of Akzo Nobel colleagues around the world.

During the third quarter, we delivered 3% volume growth, with strong demand trends for most segments and regions. The total cost savings delivered €49 million, of which €27 million was structural cost savings related to our transformation initiatives.

Our strict temporary cost saving measures delivered an additional €22 million during the third quarter. Net cash from operating activities increased by 46% to €457 million during Q3 and we have maintained a strong balance sheet due to rigorous cash management and robust working capital controls.

Delivering on our capital allocation priorities, we announced an interim dividend of €0.43 per share and a €300 million share buyback to be completed in the first half of 2021. During Q3, we completed the acquisition of Stahl Performance Powder Coatings, giving us accelerated access to a unique low curing technology.

I'm also proud that a couple of days ago, we announced the intended acquisition of Titan Paints in Spain, which will further strengthen our position as the reference for decorative paints in Europe. Although the macroeconomic environment remains uncertain for both the fourth quarter as well as for next year, we are continuing to build on our solid position as a frontrunner in the industry.

On slide 5, you will see some key financial highlights. As mentioned, our return on sales, excluding unallocated costs, improved to 17.7% versus 13.8% for the same period last year.

Return on investment, excluding unallocated costs and invested capital, was also up at 18.8% compared to 16.8% in 2019. Free cash flow increased by 51% to €393 million for Q3, demonstrating our focus on carefully managing cash and working capital.

Adjusted earnings per share from continuing operations was up 19% year-to-date at €0.028. And at the same time, we've maintained a strong balance sheet with a net debt to EBITDA leverage ratio of 1 times at the end of September.

Slide number 6 shows how market headwinds have continued to ease during the third quarter. Revenue was up in constant currencies, with 11% growth for Decorative Paints and Performance Coatings only 5% lower overall, having strengthened continuously during the quarter.

Demand for Decorative Paints was strong for countries in all regions. This was particularly the case for Europe, including Turkey, the Middle East and Africa.

We also delivered growth in Brazil and Argentina as well as China. Demand for Performance Coatings continued to improve during the quarter, with growth for most segments.

However, revenue was still impacted by continued weak demand from oil and gas projects as well as the automotive and aerospace industries. With so many moving parts and different dynamics for segment and region, it's becoming more complicated than usual to show in one chart the underlying trends quarter-over-quarter, but I'm sure we'll be engaging more on this during the Q&A session later on.

Let's now turn to slide number 7. As mentioned, demand for Decorative Paints is particularly strong in Europe, with higher growth in Turkey as well as the Middle East and Africa as channels were allowed to reopen during the quarter.

In South America, our growth strategy is delivering market share gains in Brazil and Argentina. And in China, our geographic expansion into tier three and tier four cities is showing the first results.

However, parts of South Asia, including India, Vietnam and Indonesia, continue to be adversely impacted by lockdown restrictions. Demand for industrial coatings continued to improve, driven by growth for metal and packaging coatings, and there are encouraging signs in the demand for wood coatings that it is returning.

Powder coatings is returning to growth, with market share gains in several segments despite continued weakness in the automotive industry. Demand for yacht coatings remains very strong.

However, delayed oil and gas projects have impacted demand for protective coatings and a decline in newbuild contract for marine coatings has been partially offset by increased maintenance. Automotive and specialty coatings continues to be impacted by weaknesses in both automotive and aerospace industries, which we will believe will take up to two years to fully recover.

Despite this, demand for vehicle refinishes is returning and we are outperforming the market. Moving to our key actions and achievements shown on slide 8.

During the quarter, we've successfully taken steps to rapidly reduce cost and resumed key parts of our transformation. We've continued to deliver strong margin management, resulting in higher gross profit margins for the Q3 of 45% compared to 43% last year.

The powder technology acquisition I mentioned earlier gives us access to innovative low curing technology. And despite the pandemic situation, we conducted a regional version [Technical Difficulty] challenge in Brazil, showing how we continue to lead our industry when it comes to innovation.

In addition, our October 19 announcement that we're acquiring Titan Paints in Spain means we'll be able to better serve our customers with innovation and sustainable solutions also in that part of the world and providing us an even stronger platform for future growth as the reference for decorative paints in Europe. Earlier this year, the significant market disruption from COVID-19 forced us to pause key parts of our transformation.

However, despite all that, we completed 10 global business service transitions during the third quarter and successfully transitioned our main ERP system for about 60% of our revenue to SAP HANA technology. In total, we delivered €49 million of cost savings in the quarter, of which €27 million was structural savings related to the transformation initiatives.

We continue to lead the way when it comes to sustainability and are progressing towards the zero non-reusable waste ambition by 2030, with 5% savings on waste relative to our production volumes and 2.6% savings on relative energy consumption year-to-date. I'm also proud of our efforts in this area that they continue to be recognized and we received a platinum rating by EcoVadis, which puts us in the top 1% of the companies rated.

We also keep a keen eye on our people in this period. 81% of employees took part in our most recent employee survey, which is the highest participation rate for Akzo Nobel to date.

The results show the ongoing engagement of our global team and the results of the survey will help us understand how we're doing when it comes to organizational health. And with that, I'm gladly handing it over to Maarten who will run you through the financial results in more detail from slide 10 onwards.

Thank you, Thierry. And hello everybody on the call.

We're now on slide 10. Revenue was 1% higher in constant currencies, with 3% growth in volumes, partly offset by 1% adverse price mix due to a combination of positive price developments and adverse geographic mix impacts.

Adjusted operating income was up 18% at €353 million, driven by strong margin management and strict cost saving measures. This resulted in [Technical Difficulty] allocated cost 390 basis points higher at 17.7% for the third quarter.

Operating income of €326 million includes €27 million negative impact from transformation related restructuring costs reported as identified items. Moving on to slide 11, the quarterly trends in volume and price mix.

As mentioned by Thierry, with so many moving parts and different dynamics per segment and region, it's becoming more complicated than usual to show in one chart the underlying trends quarter-over-quarter. Volumes were up 3% overall, driven by strong growth for Decorative Paints in most countries, leading to 14% higher volumes, whereas volumes were just 5% lower for Performance Coatings, and that's compared to 23% lower last quarter.

During the third quarter, price mix was 1% lower overall, mainly due to geographic mix for Decorative Paints. We continue to maintain or increase selling prices.

For Decorative Paints, a combination of 2% positive price developments, similar to previous quarters, was offset by unfavorable geographic mix effects, in particular in Europe, Middle East and Africa. This resulted in price mix being 4% lower overall for Decorative Paints during the third quarter.

However, price mix was up 1% for Performance Coatings. Now moving to slide 12.

Adjusted operating income was €53 million higher for the third quarter. Foreign exchange rates had an adverse effect of €21 million in the third quarter, partly related to South America.

Growth of volumes contributed €32 million during the quarter, while price mix had an unfavorable impact of €15 million. Raw material and other variable costs were €38 million lower overall.

The transformation initiatives delivered €27 million and strict temporary cost saving measures added €22 million, resulting in a €49 million total cost savings. Several items have impacted the year-on-year comparison, including a one-off gain in a disposal and higher royalty income in 2019.

Other activities was also adversely impacted by one-off items during the third quarter of 2020, including insurance and office footprint optimization. Turning now to slide 13, the third quarter results for Decorative Paints.

Revenue growth was 4% and 11% in constant currencies, with 14% higher volumes, partly offset by 4% unfavorable price mix. Demand continued to improve overall and was particularly strong in Europe, South America and China.

The significant adverse impact of currencies was mainly related to South America. Positive price developments, including significant price increases in countries with high inflation, were more than offset by unfavorable geographic mix impacts.

For Europe, Middle East and North Africa, demand was strong across the board with higher-than-average growth for countries in the Middle East and Africa, as well as Turkey during the third quarter. This created an adverse geographic mix impact in the third quarter.

In South America, demand rebounded strongly, driven by reopening of the distribution channels. And for Asia.

China delivered growth as a result of our strategy to expand our business in tier three and four cities, but other countries, including India, Vietnam and Indonesia, continued to be impacted by lockdowns due to COVID-19. Adjusted operating income increased 54% to €208 million, driven by strong demand, higher volumes and cost savings.

Moving now to the results for Performance Coatings during the third quarter as shown on the next slide, which is slide 14. Revenue was 10% lower, although just 5% lower in constant currencies.

This was mainly due to the continued impact of COVID-19 on end market demand, in particular for oil and gas projects, as well as the automotive and aerospace industries. Revenue in constant currencies improved during the quarter and was up in September.

We continue to maintain selling prices and manage margins. Powder coatings returned to growth despite lower demand from the automotive industry.

And end market demand for marine and protective continue to be impacted. The protective coating segment was mostly impacted by delayed orders for oil and gas projects, while marine coatings saw a decline in newbuilds, partly offset by an increase in maintenance.

Growth remained strong for yacht coatings. Industrial coatings continued to deliver growth, driven by strong demand for metal and packaging coatings, whereas demand for wood coatings was lower.

Adjusted operating income was higher than last year at €195 million due to strong margin management and strict cost saving measures offsetting lower volumes. Now turning to slide 15.

Profit from continuing operations increased to €235 million and net income attributable to shareholders was up at €220 million, resulting in adjusted earnings per share of 34% higher at €1.30. Outstanding share capital was 190.6 million common shares at the end of September 2020.

Moving on to slide 16, cash flow during the quarter. We maintained a strong balance sheet due to rigorous cash management and robust working capital controls, with operating working capital as a percentage of revenue below the level of last year at 13.5% for the third quarter.

Free cash flow increased by 51% to €393 million compared to €216 million last year. Net cash from operating activities resulted in an inflow of €457 million, up 46% from €312 million for the same period in 2019, mainly driven by, amongst others, higher profit for the period, as well as improved working capital and lower income tax base.

Operating working capital levels showed strong sequential improvement compared to the second quarter 2020, from 17.4% to 13.5%, due to an increased focus on cash collection. Capital expenditures were €64 million in the third quarter as we continue to invest in our sites and systems, including transforming our North American wood coatings facility in High Point, North Carolina, and successfully transitioning our main ERP system to SAP HANA technology.

The increase in net debt from €0.8 billion at year-end 2019 to €1.3 billion at September 30, 2020 was mainly due to a share buyback and the final 2019 dividend paid earlier in the year. This resulted in a net debt to EBITDA leverage ratio of 1 times by the end of Q3.

Now turning to capital allocation on slide 17. In fact, we are delivering on all our capital allocation priorities.

Focus on profitable organic growth, we continue investing in our sites and systems with capital expenditure of €200 million to €250 million per year. The interim dividend per share announced today increases to €0.43 from €0.41 last year, in line with our dividend policy of paying stable to rising dividends.

Earlier this week, we announced the acquisition of Titan Paints in Spain, following the acquisition of Stahl Performance Powder Coatings during the quarter, giving us accelerated access to unique low curing technology. We continue to pursue strategically aligned and value-creating acquisitions.

In line with our modular approach to share buybacks, we have today announced a €300 million share buyback to be completed in the first half of 2021. At the end of the third quarter, our leverage ratio was 1 times net debt to EBITDA compared to 0.5 times last year.

And we target a leverage ratio of 1 to 2 times net debt to EBITDA and commit to retain a strong investment grade credit rating. And with that, I hand back to Thierry for concluding remarks on next slide.

Thank you, Maarten. On chart 19, in conclusion, you will see that we delivered an excellent performance for the third quarter with revenue growth in constant currencies and increased business return on sales to 17.7%.

These results were driven strong discipline on both margins and cost savings, but mostly thanks to the continued commitment of all our Akzo Nobel colleagues around the world. So, they deserve a big thank you.

But at the same time also encouragement for the fourth quarter as things continue to be very – a changing environment. We're clearly continuing to build on our solid position as a frontrunner in our industry, and are committed to serving our customers with more innovative and sustainable solutions.

And that's why, as I said earlier, very proud that we received the Platinum rating from EcoVadis for corporate social responsibility and sustainable procurement. Finally, turning to slide 20 which shows our updated outlook.

As you know, Akzo Nobel had suspended earlier in the year its 2020 financial ambition in response to the significant market disruptions resulting from the pandemic. Headwinds related to the COVID-19 continued to ease, although demand trends different per region and segment in an uncertain macroeconomic environment.

Raw material costs are expected to have a favorable impact for the fourth quarter of 2020. Continued margin management and cost saving programs are in place to address any current challenges.

We target a leverage ratio of 1 to 2 times net debt over EBITDA and commit to retain a strong investment grade credit rating. And with that, I'm handing it over to Lloyd for information about the Q&A session.

Thank you, Thierry. Before we start the Q&A, I would like to draw your attention to some upcoming events shown on slide 21.

The ex-dividend date for our 2020 interim dividend is on October 23 and the record date is October 26, followed by the payment on November 5. We will publish our report for the full year and fourth quarter on February 17, 2021.

This concludes the presentation. And we would be very happy to take your questions.

Please state your name and company when asking a question. And please limit the number of questions to two per person, so others can participate.

Operator, please start the Q&A session.

I've got a question for Thierry. How do you think about the idea that semipermanent [Technical Difficulty] demand for Decorative Paint, especially through DIY?

And my second question is, Maarten, in the past, you said that production sites, I think, were over 130, but you might end up targeting more or less 100 over a few years. Is that still reasonable?

Where are we in that site rationalization process? Thank you.

Tony, your first question was not easy to understand. There was some static on it.

So, let me let me playback what I think I heard and then you tell me whether that is correct. I think you asked on how much the impact is of the staying-at-home lockdown on Decorative Paints and what it means for next year.

Is that correct? Am I correct in understanding the question, Tony?

Yeah. If you can hear me, sort of like the idea that people stay – sitting at home a lot more, working from home several days a week and whether that might structurally boost demand for Decorative Paints?

Thank you.

Good question. So, let me let me tackle the two questions.

One, it is undoubtedly true that during the major lockdown we had early in the year, there was the do it yourself wave. I also want to point out, though, that there was also a drop in the trade business across Europe because nobody wanted to have a painter in the house.

So, there is gains and losses in paint during the year. It is clear that the probably underlying structural trends, independent of what wave we were in COVID or working at home or not, that home improvement across the world is on the rise.

You see that in furniture, you see that in a number of items, and also then for the paint business. So, we've done quite some research in the meantime around what does it mean for 2021.

We do believe that the normal for Deco Paint will be at a higher level than it was for the foreseeable future. So, that's actually a very positive sign.

Now, I do want to bring it a bit back, though, to the effort of our teams themselves. It is not just COVID.

If you look at South America, we're with clearly gaining market share in Brazil and Argentina. If you look at China, now that we have our margins set up, the strategy to go geographic expansion in tier two and three, four cities has brought us back to growth year-over-year in the third quarter.

And if you look at a number of European countries, we obviously are doing quite strong too. So, on the Decorative Paints business, once things normalize, we are actually continuing to be very optimistic with an underlying mega trend of home improvement probably boosting it to some extent.

The second question around the sites, Tony, you are completely correct. I think that has not changed that our installed, I would say, capacity is somewhat large.

So, we still believe that, over a period of time, we can bring it back to less than 100 sites. And there's lots of work in the background to make that happen.

That goes to aligning our raw material slate, it goes to aligning the product portfolio, implementing strict archetypes for plants around the high runners to specialized products, etc. So, that's work in progress.

And in fact, we did some plant rationalizations this year despite all the COVID-19 situations.

I wonder if you could give us some information on the one-offs within other and why they're not considered exceptional. Just if you could quantify that.

And then, just as we look into 2021, can you just outline some of the levers that you think you have to ensure that we still see profit growth in 2021 year-on-year and we don't look back and see 2020 as a year that is as good as it gets for the group as a whole?

I suggest, Maarten, you take the first question and then maybe we can…

On the one-offs in other, I think what you should look here at, last year, we had, in fact, some positives. We had the royalty income at the time from – still from Nouryon.

We had, by the way, also some positives from disposals. On the other hand, this year, we had some negatives from insurance claims as well as a negative from further footprint rationalization.

What we do is we recognize the restructuring cost related to the transformation. We recognize these in identified items.

But just operational one-offs, we've recognized it in our normal adjusted operating income. So, the €30 million is basically coming from some of the pluses last year and the negatives this year and some other smaller pluses and minuses.

But that's how you should look at it, Geoff.

Geoff, with that, let me get to your second question on what we do for 2021. I think we've alluded to that, but it's probably good to repeat that.

I think the most exceptional thing about 2020 is just a complete rearrangement of segments and the timing within the year and sometimes geographies. Underlying, though, we see ongoing strength for our businesses.

And I just want to remind everybody that, although our bottom line results, we are pretty proud of what we deliver. I just want to point out our top line is still, by COVID-19, significantly impacted and it is often impacted in very – or it was impacted in very high margin segments.

I want to point out the dynamic for powder is maybe exemplary in that one. Powder is a is a high margin business where we have a very strong position in the significant segments.

But what we've seen for [Technical Difficulty] the third quarter was significant impact in the automotive that actually got back to almost – a little bit of loss still versus last year, but still a bit below. And what we've seen in the third quarter is really a very strong commercialization of developments that the group was – that the team was working on, be it into electrical vehicles which is pretty exciting for us, be it in appliance industry, et cetera.

So, we often seem to be focusing on the upside in Northwestern Europe in deco, but there are many other segments that we are very encouraged on how they come back and how they will continue to deliver. Another big driver for deco that I just want to put forward is that we do see real signs of pricing strength.

So, the inflationary pricing is continuing and that will definitely go to the bottom line. If we look at, I would say, the income both on the revenue, the volumes and the segments that the margins associated, we're pretty optimistic.

On the cost side, I think Maarten and I have been indicating that transformation wise, we feel that, by the end then of 15 by 20, we're about halfway done. So, there is a lot of work structurally, now that the data clarity is much better given the SAP HANA situation and the sizeable chunk of our 60% and more by the end of this year of our company that's in SAP HANA.

There is a lot of work on actually structurally getting optimization and efficiencies out. So, we feel pretty confident around 2021.

We just hope that it's going to be a smoother ride than a bit of a roller coaster between segments this year.

I had a few questions. The first one is on the temporary cost savings.

These amount to €22 million while you had recorded €78 million in Q2. Can you tell us why that number declined so rapidly?

And how we should think about this number in the coming quarters? That's the first question.

The second question is on the share buyback. Can you explain what will happen when your net debt to EBITDA drops below 1?

Does it automatically lead to new buybacks? And if I can squeeze a third one in, given that we're close to your 15 by 20 target, I mean, we are almost at the end of 2020, will you soon come with new targets?

Yeah, good question. Maybe, Maarten, if you handle the first.

I think we can probably share the second and I'll do the third.

Yeah. So, on the temporary cost savings, I think if you compare Q2 and Q3, Q2 was €78 million and the third quarter was €22 million.

The key driver there of the delta is the volume-related cost and advertisement and promotion. The second quarter revenue was down, what was it, roughly 18%, 19%.

And we are now up in revenue, 1.5% up. So, that drives volume-related costs up again to normalized levels, as well as in the third quarter we returned our spend on advertising and promotion, which, of course, we stopped in the second quarter given all the lockdowns.

So, the €22 million, what is it, it's mainly travel. It's some third-party labor contractors and some auto discretionary costs.

What would you expect going forward? That depends a little bit.

But, of course, we are looking how we can turn some of this into structural cost savings because, going forward in 2021, some of the travel behaviors will change compared to what we were used to early on this year or end of last year. And we will look at how we can overall turn some of these temporary cost savings into structural savings.

So, this is how you need to look at this. On the share buyback, I think it's important to say that we have positioned this really as a modular share buyback.

So, given our capital allocation policy, which is broader in terms of investing in our organic growth, in terms of our stable to rising dividend policy, in terms of our M&A bolt-on strategy, as well as share buyback, so you should see it in the total scheme of things. And that is how we decide on share buybacks going forward.

And maybe, Thierry, you want to add anything?

Yeah. So, it's obviously not an automatic and there's also other stakeholders that we have to take into account and some of the uncertainties with COVID 19 still out there, but I think what you see is probably us being victim of our upbringing that we actually stick to the promises we made, and that we take the first opportunity to basically align on that.

So, I think the capital allocation we've outlined for us, that is, in fact, the pretty rational way of going through that. So, let me then go to maybe on the targets from 15 by 20 and what are the new targets.

It seems so long ago now given the whole COVID-19 saga. But in February, we actually rolled out new plans for the 2021, 2023.

15 by 20 was all to catch up with the relevant competitors in the market on profitability. I think we will have done that by the end of this year from what was more around 9% to where we will end this year versus our competitors.

So, feel pretty good about that. I would say that the 15 by 20 journey was maybe taking the fat out of the system.

The growth and delivery strategy we announced is really building the muscle. So, the targets we gave there was to have above-market growth.

So, a CAGR that's above market. And frankly, we haven't waited until 2021.

In fact, the third quarter shows, in many of the segments, that's exactly what's happening because we also have much more insight, much more tools, much more options to deliver on that. And secondly, on the delivering part, we said we were going to keep expanding our return on sales by 50 basis points per year.

And we definitely stick on that. So, those were actually the targets set, which it looks like we've been able, 15 by 20, to keep those promises despite real rollercoasters in the market.

And we feel pretty comfortable that we're going to be able to do that in the next years.

It's really a follow-up on Geoff's question, the first one. The high margin segments and the sort of tailwind or headwind you see in 2021, I think you mentioned Northwest deco, you don't see a big tailwind there actually.

It's a structurally high demand. Aerospace, you mentioned the two years recovery, but just how it looks year-on-year, your feeling for that.

Auto refinish should be better feeling there. And probably most unclear for me anyways, marine and protective.

Oil and gas, I understand. OEM marine.

But how do you see marine and protective year-on-year in 2021? And then, aside from that, the second question really just about the raw material situation.

Obviously, you're seeing another quite significant benefit in the fourth quarter, how you feel that's pitching into 2021? Because presumably that becomes a little bit of – potentially a headwind.

Let me handle the first one. And then, Maarten, if you do the second one.

Now, you're tempting me to go on one of my infamous long monologues to go around every segment. So, I'll try to refrain myself from doing that.

But summarizing it for 2021, on deco, you're right, we frankly are pretty comfortable on where we will be in 2021 for deco. There will be in regions and subregions ups and downs.

But frankly, our pricing power is pretty good. Our margin discipline is pretty good.

And you see indeed, in many parts around the world, our market share trending up. And that's all driven by very strong branding and distribution channels that the teams have worked on over the last year.

So, there we feel in general pretty comfortable. If you go to the segments you just mentioned, frankly, for 2021, there's a lot of optimism on our Performance Coatings businesses because we did indeed get [Technical Difficulty] many of our segments because of COVID-19.

And we see those returning pretty strongly. If I look at powder coatings, I want to remind everybody about 20% of our powder coatings business is related to automotive.

It's clear that we're doing better than the market there. But in addition, we see in all of the other segments, on appliances, architectural, et cetera, in frankly, every geography we are, by the end of September, we were ahead of where we were last year.

So, we see really the underlying growth finally coming back. And in automotive, I alluded to that, some very exciting electrical vehicle applications related to the inner workings of the car, which actually create unexpected new options for that industry.

So, there we've continue to be very strong. Automotive specialty coatings.

Refinishes, in fact, back for us to its normal glory in our key markets for us, which is North America and Europe. And that is a pretty lucrative segment.

So that coming back from really dark depth in the middle of the year is actually pretty encouraging. Aerospace I think is going to be what it's going to be.

I think it did [ph] at its low point. There's also probably some destocking and some other delays that are happening.

So, that can only go up. We think we'll see that in 2021.

But before it really gets to strength, I think it's probably a year later, but that is already in our numbers today. Just generally over industrial coatings, which has, in fact, been a powerhouse both in packaging, very strong.

Our metal coatings business around the globe is extremely strong. And the wood finishes business, the canary in the coal mine is, I would say, Asia.

And that seems to be coming back. So, it shifted from China to Southeast Asia, then it wasn't clear where it was in the COVID-19 situation.

But we're really seeing Southeast Asia, the wood finishes business where we have a strong franchise coming back. And then, last but not least, indeed marine and protective, marine is basically at the same level as it was before.

So, it's not moving upwards. And I think the team has done everything on margin management and costs to manage that.

Secondly, what the protective business is concerned, I think we are now in the darkest period because a lot of it is oil and gas related. And the oil and gas companies have been delaying a number of maintenance and project work.

But you can't delay that forever. So that actually will have to come back.

Rust and corrosion doesn't stop for a recession. So, that has to come back in 2021.

If you look at our protective business, it's mainly the infrastructure and power around the world that's doing very well. And notably, the whole China franchise in marine and protective is exceptionally strong and is coming back.

So, I would say, Peter, long story, but those segments have been at the deepest points, and we see them gradually coming back to where they were or actually at strength. So, as some other segments may have a different dynamic, overall, we are pretty confident about 2021, both on the top line and on the bottom line delivery.

Maarten, if you want to…

Over to your question on raw material, so we have indicated that raw material for the fourth quarter will be favorable. But I just want to make sure that we temper our expectations a little bit because if you look at the comps last year, we had an unfavorable effect.

Overall material – so that was Q4 2019 of €42 million, while the third quarter 2019 was only €4 million. So, kind of the favorability or the run up of the raw material cost savings really started in the fourth quarter of 2019.

So, it will be favorable. But there is comps which we have to take into account.

Now saying that, I think it's also good to mention that we do see some prices in some raw material categories going up at the moment that is kind of on a price to price level. So, we will start to see – with a delay effect, of course, during the coming quarters, we will start to see that coming into the different [Technical Difficulty] depending on the delay effect per business.

So, early next year, that still will be favorable. But that will at a certain moment during next year start to turn.

Well done on Titan.

[Technical Difficulty] between mix in terms of price point and profitability for the deco business? And then, the second question is around the buyback.

I appreciate what you're saying about a modular approach. And the business is obviously generating a good amount of cash.

But can you just elaborate a little bit on why you decided not to preserve that firepower to do M&A? Can we infer from that that really your focus is on modular size bolt-on deals?

Matthew, we'll try to answer your second question. But you will have to repeat your first question because you had dropped completely off, so we only heard your conclusion of the question.

So, we will do the last bit. Let me let me answer on the share buyback.

So, we've talked about it before. The modular share buyback is really – we gave a leverage we want to be at as a company to do that.

And we also at the same time have indicated that we do want to keep focusing on bolt-on acquisitions. By the way, the Titan acquisition is a real textbook example.

If you look at our position in Spain where we went after the acquisition, where we were in 2017, the acquisition we did of [indiscernible] and now of Titan is really a reset in a major European country for us, both in impact and also in into performance for us. So that continues to be the case.

Now what firepower is concerned for potentially bigger deals, I think we do have a firepower enough for doing those. So I don't think that one necessarily is in conflict with the other.

I don't think you should read any real decisions in that. So, that's on the on the second question.

Now the first question, Matthew, you will have to repeat because you were not audible at that moment of time.

Let me try again. It's around the deco business and the relationship between mix or price point and profitability.

Obviously, in the quarter, you're showing that the mix was a headwind. But clearly, there was very good margin delivery.

Can you just talk a little bit about why there's no simple relationship between mix and profitability?

Well, because if you look at deco in Europe, but then it even gets more complicated if you worldwide, but if you look at deco in Europe, you have first of all different dynamics in do it yourself and the trade business, but you also have significantly differences between Northwest Europe, South Europe, Middle East, Africa, Turkey, etc. And that is partly because of market prices.

But it's also partly because sometimes [Technical Difficulty] the price is very different. You saw in the second quarter, all of a sudden, we had this 4% up in deco and then in the third quarter you see 4% down.

Actually, there is no mystery to it. There was an over-proportional demand and a very low demand – an over proportional high demand in Northwestern Europe and a low demand in North Africa, Turkey Middle East because many of the channels there were closed.

And in fact, not a mystery in the third quarter. It just reversed.

So, the northwestern business continued to do very strong. But now you had a real surge as distribution and channels opened up in the very south, which then gave a high volume demand that was pent-up demand from the second quarter before.

So, it's really nothing else than geo mix. And then you have some mix in countries etc.

So, there is no simple relationship. The only thing that we wanted to point out in the charts and the presentation that the price – for price, that means if you're in a specific country in a specific channel buying a product from us in deco, the price has actually trended up, it's either the same or has trended up and that is what it will continue to do.

The rest is basically just COVID shift between segments and markets. Does that answer your question?

Absolutely. Very clear.

Thank you guys.

Just maybe two. One kind of qualifying some of the comments you've made.

Clearly, you see raw materials as a tailwind there, perhaps less than what we've just seen in Q3. Margin, structural margin management, and temporary effects should still be a positive in the fourth quarter.

Volumes presumably are still trending positively. If you see a scenario now where you deliver 15 by 20 for the full year, presumably kind of taking the 14.5% to 15.5% as you kind of redefined it earlier, do you think that is now achievable given what you see in front of you in the fourth quarter?

And then just secondly, on the comment you made around pricing earlier on the call, saying that you saw a kind of a good outlook for kind of further price inflation led price increases into next year, just what's supporting that? Obviously, we see lots of deflation out there on the raw material side.

Just what gives you the confidence on the pricing? Is that just better demand that gives you more ability to continue to push higher prices?

Just trying to understand that. And what kind of order of magnitude?

Are we talking kind of 1%, 2% as we think into next year? That'd be very helpful.

Now, let me try and then Maarten chime in. On 15 by 20, I think beginning of the year, we suspended any guidance because it was just not clear what was going to happen in the year.

I think we took all the measures, and I think that we – it's actually the organization took all the steps they could on costs and on margin and on pricing, etc. So, we are pretty encouraged by the year.

We're actually not going to give guidance for the year, though, because we're going to keep pushing, but at the same time, the fourth quarter is a smaller quarter for us. And at the same time, with the second wave, we don't want to put ourselves on to tens of percentages on where we're going to happen, etc.

So, the one thing is that we feel pretty confident that we will have caught up with our competitors. And then where we exactly land versus the 15, we won't stop pushing by the way, so it will not be by the lack of trying to get there.

So, I'm not going to give guidance, but I think we are – hopefully, we come across as pretty confident around where we are with our business and how definitely also 2021 looks like. On pricing, a couple of elements there.

Charlie, first of all, lots of work has been happening in the last few years to get the transparency on our raws and how that translates to complex inventories in our number. So, we have a much better forward look on where this is going to land in our P&L.

Specifically for markets like deco, for example, what we've seen is that we have a very strong brands, very strong distribution, lots of customer support both on the trade and on the do it yourself. And what we've seen is that, frankly, as long as we are coherent in our pricing strategy throughout the channels, that, in fact, everybody is kind of onboard and supportive for this pricing management.

So, that's why that happened now over the last two, three years that we feel we can – we have the power to do inflationary pricing. And also, I think the market seemed to be adjusting to that as a practice in general.

So, that's why we feel pretty comfortable. For the more industrial markets, I think that's why we said it before, there it's really focusing on margin management.

And in fact, the thing that matters for us is the expansion of the margin of the product. And if raws were to go really down, then maybe you have to adjust your pricing, but we definitely will keep working on [Technical Difficulty] between those two.

Maybe to add, Charlie, that – and we've said before that we focus on driving really annual price increases of 1% to 2% to cover inherent inflation. And that's mainly focused on deco on the back of our strong position in deco and our brand strength, but also in coatings there where we talk about the distribution channel.

So, not due to industrial site, but more the distribution side of the house. So, the 1% to 2% is indeed confirmed, which you mentioned.

Two questions please. The first one is regarding cash management into Q4.

Given the strong cash in both Q2 and Q3, and I was just wondering where are you on inventories. Should we still expect the usual seasonal boost in Q4?

Or do you need to replenish inventories and also have a bit more CapEx to spend, et cetera? Any comments there would be helpful.

And then, Thierry, the second question is on M&A. Your three largest competitors are openly talking about M&A.

I was wondering if there's any shift in the nature of the M&A pipeline. Presumably, there might be more sellers now that the bid/ask spread can be narrowed.

Can you remind us on your value creation criteria for M&A because otherwise it seems that it could be easy to overpay for small acquisitions when you have four big buyers that are interested? Thank you.

You want to do the first one, Maarten?

On cash management, first of all, we are very pleased with how we have managed our working capital in the third quarter. You know that we went to kind of weekly demand and supply cycles to really manage our inventories in a tight way.

But also, our cash collection because we had a run up of our receivables during the second quarter. And you see that now coming down again on normal levels.

So, for the fourth quarter, normally the third quarter and fourth quarter are strong quarters in terms of cash generation. And for the fourth quarter, we continue to focus on working capital management and to focus on cash collection and our demand and supply cycles, given still the uncertainty and the volatility we see in some of the markets.

So, in that sense, we continue our focus on working capital.

So, Laurent, your M&A question, and it's true, everybody's talking about it. But I just want to remind you, we did two this quarter.

So, I think there's talking and then doing, I guess. So, there is some activity now.

At the same time, there has been a bit of a lull where everybody was looking at it, but during the COVID-19, you just have the logistical issues to do a due diligence in faraway places, etc. So, I think that's hampering the style of everybody.

I just want to remind that we've been very consistent, I think, on looking for bolt-on acquisitions that actually lift our business performance in deco in specific geographies. Because [Technical Difficulty] same channels, etc., obviously the top line and/or the bottom line synergies are pretty impressive.

So, that allows us to pay the right price for those assets. And that's what you see with the acquisitions that we've done over the last, I would say, 18 months to 2 years.

It's been a consistent pattern. There are a number of items that's come up.

So, there is a little bit more, I would say, noise in the system. Sometimes a bit driven by opportunistic.

Somebody believes this is the moment to get out of the business. And we are very vigilant.

So, I think we're actually looking at many of those items. At the same time, we want to be good stewards of the funds in the company and don't want to start overpaying.

So, any of those acquisitions, we need to make sure that it is actually value accretive. So, I think we've been on record that if the multiples start getting higher than ours, we think twice.

And myself and Maarten who sits next to me, we are very rigid on, is the synergy plan here, is that realistic? Or are we just getting into buyer obsession for doing the things?

And the buys we did actually completely refer to that. So, it's pretty mechanical for us on making sure that we create value in those and it's pretty detailed views versus just trying to inflate top line because it feels good.

Yes, I guess, it does. And then, maybe as a follow-up to Maarten's point on cash flow and the point on the view that raw materials are ticking up.

So, why not stock up a little bit on raw materials if you are indeed that optimistic about volumes and demand into 2021? There's quite a high likelihood that raw materials will continue to tick up.

I didn't catch your question.

These inventories, have a strategic view on raw materials over the next few months and buy a bit more than what you…?

We don't want to speculate on raw materials in terms of forward buying. So, we have, of course, our wherever our purchasing contracts in place.

Depending on the raw material baskets, they are three to six months. We have clear visibility, also forward visibility at least for the coming six months.

But no, we don't go into [indiscernible] speculation here.

And, Laurent, speculating raw materials is actually always a dangerous game. So, probably anybody who ever did that can be 50% of the times you're right and 50% you're wrong.

So, over a certain period of time, it is not necessarily the most value creating way of using your cash. So, I think our procurement has done an extremely good job over the last two years to have contracts that give us flexibility if there were big changes.

By the way, it all depends if COVID-19 in 2021 might be again a headwind for the economy, then actually raw materials might start going down again because it's a bit of communicating vessels out there. So, in that sense, that's why we – I don't think anybody in the trade really engages in significant inventory hedging.

Thank you.

Just a couple of questions. I know you don't want to guide specifically on Q4, but just looking, there is some seasonality, especially in the deco business in Q4.

How would you characterize your view at the moment in terms of Q4 versus the historical seasonality that we see in Q4? Do you believe it could be better, it could be similar or worse?

That will be useful. And just the second question, was just looking into next year to the item that you can control, which are costs.

Do you think – given some of the temporary savings this year, can we see a net reduction of costs again next year? Or do you see actually there might be some increase given some of these temporary cost savings for this year might come back?

Thank you.

So, two comments. Chetan, I think for fourth quarter, I think, hopefully, we portray some confidence.

But then deco is always kind of going a little bit off the radar, that might be slightly different and a bit more optimistic. But frankly, the COVID news every week is a bit different.

So, we feel relatively reassured, but we'll see. So, I think there's a guarded optimism there on the fourth quarter.

On the cost question you have, I think Maarten has alluded that some of the temporary cost savings will continue. Having said that, hopefully, we get back to normal on many of the visits out there, et cetera, so that some of it may disappear.

But I think, overall, we definitely want to offset inflation. And we've done a lot to get fat out of the system over the last three years.

It caused some stress in the organization. So, I think we definitely want to hold on to the gains that we have.

So, a lot of the travel, I think you alluded to that earlier, Maarten, some of the virtual ways of doing things definitely seem to be staying to a large extent. So, the cost discipline continues.

And then, as I indicated, there's much more structural items around our infrastructure, office infrastructure footprint, etc. that continues to trickle in during the years.

So, indeed, three elements. One is making sure that we offset inflation, and it's mainly wage inflation.

Secondly, indeed, looking at retaining some of the temporary cost savings. And three, the structural programs we have in place, which obviously continue also into next year and thereafter.

Just two quick ones please. Firstly, on the negative net, as we look out further into next quarter and next year, do we expect the uptick in the remaining geographies as they open up to continue to have a negative impact on mix like you had that in the third quarter?

And then just one question on the M&A side of things. You've touched on this already.

But in terms of your other competitors also talking about M&A, is it quite competitive out there? Was Titan a competitive acquisition?

Was there other bids in there? And you didn't acquire the powder part of the business and industrial coatings part of the business.

Any comment as to why that was not interesting, given I think at the CMD you talked about powder coating business is quite an attractive end market for you?

Correct. So, maybe in telegram style, on the negative mix, is that going to stay?

The answer is really no because, frankly, if you look at the second quarter, one region was a bit higher. So, we had plus 4% in deco; and then, on price mix, we had minus 4% in the third quarter.

What you see is really different timings, disruptions in markets et cetera. But all in all, if you take the average, it's a pretty predictable plus 1%, plus 2% on that.

So, I think as things stabilize, that's actually going to be going forward. So, you just see this jerking reactions in supply chains and markets at this moment of time.

So, again, I want to point out, it's not that one went up and the other went down. It's just the timing in the second quarter, third quarter that was a bit different than we are used to.

So, [Technical Difficulty] it was a competitive bid. Now, again, there we do stick to what we want to offer, what can we justify [Technical Difficulty].

We don't know who else was in the bid, but at least we feel comfortable and happy [Technical Difficulty] and satisfied with the final price we had to pay. Why did we not go for the powder part of Titan?

[Technical Difficulty] business, but our powder team felt that it didn't really add much to our already existing powder franchise in Spain and the market position we have there. So, it felt it was going to be a superfluous acquisition for us.

So, that's why we very consciously did not make – didn't go for that powder coating part of Titan.

Which indeed is a proof point of the discipline which we apply to these kind of processes. A proof point of the discipline which we, which we apply these kind of processes.

Okay. I think that's the end of our Q&A session today.

So, thank you very much to everybody for attending our presentation and Q&A session. If you do have further questions, feel free to reach out to the Investor Relations team.

Thank you and have a good day.

Thank you. Bye-bye.

Bye.