Akzo Nobel Nv Ord New

Good morning and welcome to Axon Nobel's Investor Update for the fourth quarter of 2023. I'm Kenny Che, Head of Investor Relations. Today, our CEO, Greg Pouguillon, and CFO, Marvin DeVries, will take you through our results. Refer to the presentation, which you can follow by webcast or download from our website at axonobel.com. A replay of the webcast will also be made available following the event. There will be a Q&A session after the presentation. For additional information, please contact our investor relations team. Before we start, a reminder of our forward-looking statements disclaimer on slide two. Please note this also applies to the conference call and answers to your questions. I will now hand over to Greg, who will start on slide three of the presentation.

Thanks, Kenny, and good morning to everyone on the call. We'll start today's presentation with an overview of our performance for the fourth quarter and the full year. We'll then go over our guidance for 2024, as well as our midterm ambitions. Our Q4 results demonstrate a solid performance building on the positive momentum from previous quarters. Revenue increased 4% in constant currencies, primarily due to organic volume growth of 3%, with growth in all of our business units in the fourth quarter. We continue to benefit from raw material deflation, and this combined with resilient pricing and positive volumes resulted in a March expansion of 390 basis points. Adjusted operating income increased by 75% to 220 million euros in the fourth quarter. That 220 million euros was really 244 million euros in line with our guidance, excluding the big hyperinflation accounting correction triggered by the elections in Argentina. Improved profitability and a reduction in our working capital contributed to a strong free cash flow of €460 million in Q4, and this resulted in further deleveraging. We finished the year with a net debt to EBITDA ratio of 2.7 times. Overall, 2023 was a year in which AxoNobel delivered a clear rebound in performance. Despite facing soft market conditions in the first half, our businesses quickly stabilized and delivered flat volumes for the full year. a result of outperformance in many of our markets and a testament to the resilience of our portfolio. Despite persistent inflationary pressure and significant unfavorable currency effects during the year, our focus and execution enabled us to beat the targets we set ourselves, and there is more to come. Turning to slide four. Organic volumes were up 3% in Q4. We achieved positive volume growth in all our business units, the first since the second quarter of 2021, with Deco Asia, Marine and Protective, and Powder Coatings being the top performers. In Deco EMEA, I'm sorry, in Deco, looking at the regions one by one, EMEA bottomed out mid-year and exceeded our expectations by delivering low single-digit volume growth in Q4. In Latin America, Q4 performance was driven by strong volume growth in Brazil during its peak trading season at the end of the year. Asia largely followed the trend seen earlier in the year. In coatings, the momentum continues to gather pace. After a soft first half, the earlier than expected recovery in our powder business continued in Q4 with mid-single digit growth. In marine and protective, we continue to build a strong commercial pipeline and to grow market share. a trend that should continue given our successes in technical new builds. In automotive specialty coatings, we had a solid Q4 in our vehicle refinishes business, especially in Asia. And in consumer electronics, we're seeing signs that the cyclical downturn demand is close to bottoming out. That's also the case in the industrial coatings business unit, where Q4 volumes were up year on year despite our expectations for low single-digit declines. Coil did well in Asia and Europe. Packaging demand showed signs of improvement after stabilizing in Q3. This gives us good momentum going into 2024. We expect positive volumes driven by improving end market conditions and share gains across many of our businesses. Our coating businesses have room to rebound with volumes remaining well below 2019 levels. But this is true also in DECO EMEA, where we expect a progressive rebound over the next few years. The slow market recovery in DECO China is expected to continue in 2024, although we are mindful of difficult comps in China in the first half, impacting the phasing of our performance for the year. I now hand over to Martin to go to the numbers on slide five.

Yeah, thank you, Greg. And hello, everybody on the call. As Greg highlighted, we delivered another quarter of strong results, concluding a successful year of rebounding performance despite significant currency headwinds. Our revenue for the fourth quarter increased by 4% in constant currencies and was down 3% in reported revenue. Organic volumes in both paints and coatings rose by 3%, further improving on flat volumes from the third quarter. Pricing continued to hold up well for both paints and coatings. M&A contributed 1% to revenue growth, mainly from the Huarong acquisition in China. Similar to the third quarter, FX continued to pose a considerable challenge as our basket of currencies weakened, particularly in Argentina, where we experienced a sudden devaluation of the peso in December. The macroeconomic situation in Argentina also resulted in an unexpected increase in the impact from hyperinflation accounting in the fourth quarter. Despite the effects and hyperinflation accounting headwinds, I'm pleased to report that our Q4 adjusted operating income improved by 75% year over year to 221 million euro, with return on sales expanding 390 bps, as we continue to benefit from raw material tailwinds in our P&L. Now turn to slide six. Our adjusted EBITDA for the fourth quarter was €313 million, representing a 42% increase from previous year. For the full year, adjusted EBITDA was up 24% to more than €1.4 billion, with our EBITDA margin expanding to 13.4% from 10.7% in 2022. We delivered the upper end of our original guidance, and even more so when considering the FX headwinds we faced throughout the year. We are pleased to report further progress on the reduction of our working capital in the quarter. As a percentage of revenue, our working capital decreased to 15%, which is 2% lower than both Q3 and prior year level. This is a market improvement compared to the level we reached in Q1 2023, where the combined impact of low demand and high cost inventory led working capital to peak at 18.6%. Notwithstanding the impact of seasonality, we expect to make further progress on returning to normalized level in 2024. Together with the improvement in profitability, working capital reduction contributed to a strong year-on-year increase in free cash flow, which was €460 million in the fourth quarter. Our free cash flow for the full year was also much improved at €840 million, compared to a negative €21 million in the previous year. Moving to the next slide. Lower profitability and the unprecedented inflationary cycle drove our leverage from 1.9 times to 4.2 times in the first quarter of 2023, in a short period of just one year. 2023 has been a year of strict capital allocation with our focus on the leveraging. The improvement in profitability and free cash flow in the fourth quarter contributed to a further reduction in our net debt to EBITDA ratio, which fell to 2.7 compared to 3.2 in the previous quarter. We forecast our leverage ratio to improve to around 2.3 by the end of 2024, reflecting our continued focus to reduce the absolute level of net debt and improve our working capital position. At year-end, net debt was approximately €3.8 billion, representing a reduction of €300 million for the end of 2022. Interest on our long-term debt of €3.2 billion currently averages around 2%, while our short-term debt, including commercial paper of €2.4 billion, averages around 4.5% interest. Again, reducing net debt remains a key priority for us in 2024 as we continue to deleverage in 2024. Turning now to the next slide. We are proud that Accionobel continues to be the clear leader in the paints and coatings industry when it comes to sustainability. 2023 marked another year of solid progress towards our key sustainability ambitions for 2030. We made progress on reducing our own emissions, scope one and two, as well as scope three, which encompasses our supply chain. We maintained industry-leading ratings for ESG performance from the key rating agencies and are capturing the opportunities that sustainability presents as a catalyst for innovation to reach our 2030 targets as well as driving organic growth in the years to come. This is already the case across many of our businesses. In powder, we are pushing the boundaries of this exciting technology. In recent months, we launched an industry-first powder for architectural use that cures at 30 degrees lower than traditional powder coatings, cutting energy consumption by up to 20%. We're excited about helping our customers reduce both their carbon footprint and their costs. Moving now to our 2024 outlook on the next slide. Based on current market conditions and at constant currencies, we expect to deliver adjusted EBITDA of between 1.5 and 1.65 billion euro in 2024. As Greg outlined earlier, this is based on our expectation of low single-digit organic volume growth. We will continue to remain disciplined on pricing and, for at least the first half of the year, realize the benefits from raw material deflation, driving further margin expansion in 2024. As we outlined with our Q3 results, we expect our industrial efficiency measures to deliver the first P&L benefits in 2024, a still modest 25 million euro with a lot more to come towards our 250 million euro commitment. Our guidance for CAPEX reflects the incremental investment to drive these efficiencies as highlighted last quarter. We anticipate a leverage ratio of around 2.3 times a year end with continued improvement to our working capital position. Our policy of stable to rising dividends remains unchanged while we expect our dividend per share in 2024 to be stable compared to 2023. For the first quarter especially, we anticipate adjusted EBITDA to be around €340 million, slightly higher than Q4, excluding hyperinflation. And I'll now hand over to Greg to speak about our midterm priorities.

Thanks, Martin. Moving to slide 10. On this slide, we lay out the roadmap for growth in the midterm. Our portfolio shows clear opportunities for organic growth driven by a combination of structural market growth, cyclical tailwinds, and sustainability-driven innovation and differentiation. Based on this, we believe we can deliver low single-digit volume growth over the midterm. Our high-volume industrial coatings and deco EMEA businesses are expected to deliver flattish volumes beyond a probable bounce back initially off a low base. We anticipate steady moderate growth in our high-value, low-volume automotive and specialty business, primarily driven by our vehicle refinish business. We're also excited about the growth trajectory of our aero business in the coming years. The bulk of our organic growth will be driven by our strong emerging market presence in DECO Asia and Latin America, as well as our strong franchises in powder and marine protective, where we expect mid-single-digit growth. We'll touch on these two segments in the next slide. The slide 11 talks about powder coatings. Exxon Nobel is the clear leader in the global market for powder coatings. If you take our market share worldwide, we've got twice the market share of the number two player. And if you take our market share at European level, we've got closer to three times the market share of the number two player. So we are both the technology and technical service leader in the powder coating market. We have the most complete and competitive product portfolio, coupled with a supply network which positions us as the best partner across many end markets. We're a trailblazer on the liquid to powder conversion path, which has only scratched the surface. This is illustrated by the electrical vehicle market, where powder differentiates through its electrical insulation properties but also could be an elegant solution for body panels as EV players don't have legacy paint booths like the traditional car players and can therefore think out of the box as they build factories. Our recent focus has been on expanding our offering to unlock customer and application opportunities. This means not only color and premium finishes, but also lower occurring temperatures for energy savings and sustainability. Lower curing temperatures also open powder to a wider variety of substrates like wood or plastics. As Martin mentioned earlier, in Q4, ExxonMobil set an industry first by launching its full architectural powder range with curing temperatures 30 degrees lower than the competition. This is actually a big deal. While we're the market leader in the premium segment, we also see the opportunity to expand our presence in the mid-market. where volume growth is higher and technology can still be a differentiator. And we're already well underway, having successfully launched our cost-effective Interpon 500 powder coating line in 2023. So powder will be a growth driver for us in the years to come. Moving to marine protective on slide 12. Marine protective at Exxon Nobel also had a great 2023. and its positive growth trajectory, both in volumes and profitability, will continue for years to come. This is a business where we historically had a global leadership position, but where we chose to de-emphasize the marine new-build market business for a number of years, leading to market share loss. Our efforts to rebuild this position are well underway, and they're capitalizing on the new trend around sustainability, which necessitates more technical solutions And this plays to our strength, hence the fact that we believe that we can be a significant player in NewBuild again. And when I talk about technical trends and sustainability, it's things like biocide-free anti-fouling in which Axo is leading the market. We're benefiting from a buoyant shipbuilding market, but also regaining market share. Our rebound in the NewBuild space will boost our higher margin dry docking business in the years to come. We've had a number of wins this year that haven't been booked because these are multi-year commitments, but that will show in our numbers in the coming years. We also have a solid pipeline of infrastructure projects where we are regaining ground in passive fire protection and a significant opportunity to exist in clean energy capitalizing on our good market position in wind energy. We see volume growth in marine protective at mid single digit in the midterm. We also expect the profitability of Marine and Protective to be back in the double digits by the end of 2024 and to subsequently continue towards the mid-teens. Let's now turn to slide 13 for our midterm ambitions. Our global, I'm sorry, our roadmap for both growth and profitability gives us confidence that we can make a significant step change in the performance of ExxonMobil. We see the opportunity for sustainability-driven innovation and increased scale in select markets to drive low single-digit volume growth in the midterm, defining the midterm as three, four years out, very much like our industrial excellence program where we have targets into 26, 27. That's essentially the time span we're talking about. Combined with our industrial excellence initiatives outlined with our Q3 results, we expect to deliver an adjusted EBITDA margin of at least 16% over that period, leading to an adjusted EBITDA CAGR of over 6%. Our industrial transformation will deliver higher asset utilization, which will be visible in our return on invested capital. Our ambition is to improve from the current level of around 13% to between 16% and 19% in the midterm. As Martin outlined earlier, we remain committed to a strong investment grade credit rating and a normative leverage ratio of around two times, which will enable us to regain capital allocation flexibility. In summary, we are encouraged by our rebound in profitability in 2023, despite continued macroeconomic volatility, including adverse currency impact. We are confident of resuming volume growth while delivering further profit growth in 2024. and we have the means to go beyond that in the midterm. Kenny will now close with information about upcoming events, and we'll start the Q&A session. Kenny?

Thank you, Greg. Excuse me. Before we move to the Q&A session, I would like to highlight some of the upcoming events on slide 14. On February 28th, we will publish our annual reports, and the date of our first quarter 2024 results will be on April 23rd. Our AGM will be held on April 25th, The ex-dividend date of our 2023 final dividend is April 29th, and the record date is April 30th, followed by the payment on May 7th. This concludes the formal presentation, and we would be happy to address your questions. Please state your name and company when asking a question, and please limit the number of questions to two per person so that others can participate. Elliot, please start the Q&A session.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question today comes from Charlie Webb with Morgan Stanley. Your line is open. Please go ahead.

Yeah, morning, everyone. Thank you for the time to ask some questions. So just first off on pricing and rules into 2024, just interested to hear about how pricing is going as you look into 2024. Do you expect that to be a positive number or somewhat more neutral and just latest around that relative to what you see in the raw material basket? That's kind of question number one. And the question number two, just around the midterm ambitions, considering obviously leverage coming down to about 2.3 times, target leverage of two times, just how do you think about capital allocation within that midterm ambition? You know, the kind of debate between M&A and buybacks, you know, what's the preference? Is any of this included in your assumptions around margins and returns or not? Just understanding if that's kind of a standalone, actually, as we see it today, or how you think about capital allocation within that construct.

All right. Hi, Charlie. I'll take your pricing and raw question, and Martin will take the midterm ambition and capital allocation. So pricing was positive for us in Q4. We estimate that pricing will be essentially flattish in Q1. And when we look into 2024, price is going to be a mixed bag. It's going to be... keeping up with devaluations in Turkey and Argentina if more happen. And as you know, that's about 4% of Axa Nobel. It's going to be some price givebacks in businesses like packaging, where we have index contracts like all our competitors. It's going to be price taking in markets where it's more of a seller's market. If you take aerospace, where we can barely keep up with demand. there is an opportunity to absorb inflation and potentially more through pricing. And then if you take our DECO businesses, it's really a regional thing. It depends on local situations. We'll be increasing prices in Latin America. We are currently decreasing market pricing because the market leader, Nippon, has been doing that in China. And in Europe, there is inflation, so we have to have price discussions with our customers. But it'll be a reflection of the pricing power and the dynamics that you have currently in Europe. Some of the larger retailers struggled more with the notion of price increases, as we saw with Carrefour and PepsiCo in France. But in the smaller outlets, I think this is less granular and probably more flexible. Overall, we expect pricing to be positive in 2024, but with a picture that's more complex and diverse than it was in 23. And it's positive, but positive marginally. Pricing is not going to be a big story, positive or negative, for us in 2024. Raw material deflation continues. We said price versus raw continues to be a big story for us. It was, we said it was 113 million of ROMAT deflation in Q3. Q4 was more than that by, you know, do we even say these numbers, Martin?

No, it was slightly more.

It was like 20, 20 more than that, maybe. So Martin gets me in trouble. I'm going to get myself in trouble with Martin by giving you too many numbers. And Q1 continues along that trend and essentially the first half of, of 2024 continues to be a raw mat deflation story. More for Axo than anybody else, because as you know, we started the down cycle in raw mats with higher inventories than anybody else. So we're trading later than everybody, which means that we've got that upside. And in the second half of the year, it's looking flattish to slightly favorable, depending on the markets. So Overall, you know, pretty good picture, but margin expansion in 24 is going to be more about RAS than it will be about pricing. Martin, you want to compliment or jump into the midterm question?

No. So on your capital allocation, as we said, first of all, 2024, the focus will be on further deleveraging, as we said. And from a capital allocation perspective, we've indicated that dividends will be stable. Beyond that, I think that's for a discussion to come up by the latter part of this year, when we are with the leverage ratios which we aspire to, and that's around 2.3 by the end of this year. That will open up the discussion then on how that capital allocation will involve M&A share buybacks. But for now, the focus is on the leveraging.

And just a clarification, the mid-term ambitions out to 2027, that doesn't include any M&A in the thinking in the 6-10 CAGR number you put out for EBITDA. That's just Axis standalone, is that correct?

That's absolutely correct. So the numbers we put out there are all based on our organic plans. Okay, clear. Thank you very much.

Thanks, Charles. We now turn to Lauren Favre with BNP Paribas. Your line is open. Please go ahead.

Good morning and thanks for taking my questions. The first one would be maybe just going back to those bridge elements that you're volunteering, Greg. When we try to reconcile Q4, it looks like you've had very marginal leverage on volumes, especially as you just mentioned, the strong net pricing. Can you maybe talk about the... the connection between, I guess, the P&L and also the very strong working capital improvement we've had. So have you had, I guess, lower absorption of fixed costs than what we should be assuming going forward? And the second question is on, I guess, the Red Sea since the beginning of the year. Can you talk about how it's changing, you know, maybe your purchasing patterns, what you're seeing in terms of invoices sequentially? Are you seeing sharp inflation? but also are you seeing any change in behavior from your customers in terms of maybe temptation to be restocking? Thank you.

Yeah, so on your first question, and I think you are referring to how OPEX has developed throughout the years. In fact, if you look at it, we've indicated that we would have roughly 200 million inflation in 2023. that happened. We have compensated net on roughly half of that. And the other half, I mean, we had actions in place to compensate, of course, but we had also additional costs, including what we have indicated before, amongst all those slow moving and obsolescence material. So part of that cost inflation sits in the Q4 numbers. And that's why you probably see not the maximum operating leverage coming through. I think it's also important to mention that from an overall wage bill perspective and other wage bill-related accruals, they were somewhat higher in the fourth quarter.

Yeah. As Martin said, slow-moving inventories, we've talked about that multiple times in the year. We've been cleaning up that inventory cleanup, having a solid year in 2023 gave us the opportunity to make sure we accelerate that cleanup. And you see that in the Q4 numbers. And as you know, we missed on our objectives in 2022. So you can imagine that from a bonus accrual, 23 was a higher year than 22. So the deltas you can find in there. The RETC question, the RETC situation obviously impacts EXO. It means at this point that some of our goods sit on boats for longer periods. It also means that transport is a bit more expensive. At this point, from a working capital perspective, it's manageable. And from a cost perspective, it's also manageable. So we're not seeing it as long as it doesn't amplify. We're not seeing it as a as a significant issue that would impact our performance, but we monitor the situation. Laurent, did we answer your question?

Laurent, thank you.

Thanks.

We now turn to Alex Stewart with Barclays. Your line is open. Please go ahead.

Hello. Good morning. Two questions. End of the year at 2.7 times net debt to EBITDA. You're talking about a flat dividend in 2024, and it sounds like some further improvement on working capital. So I'm surprised that your deleveraging target for 2024 is only 0.4 times net debt to EBITDA from 2.7 to 2.3. Could you talk us through the drivers of that and whether there's something else in the cash flow statement we should be aware of? Because typically... level more quickly than that in a normal year. The second point really is that if we look at your raw material basket, as you have disclosed until recently, the costs are still well above what the equivalent monomer costs are. In other words, the input for your suppliers. So there's quite a significant gap in the raw material chain. Why do you think that is, and why has that persisted despite having very weak volumes in the whole paint and coating industry for the last couple of years? And why would you not expect that to converge over time? Those are my two questions. Thank you.

I missed part of the second question.

Did you get it, Martin? But I don't understand your point, because from a raw material perspective, we see raw material coming down very much in line with what we expected and what we have indicated earlier. And that is with a high single-digit percentage. So I don't understand exactly where you're referring to, Alex, on the second question. Do you want to clarify, Alex?

Maybe I'll tell it offline and speak to Kenny about it, but if we can address the free cash flow.

But as Martin said, you're looking at kind of low, low single digit, low to mid single digit raw mats relief in 2024. So that trend continues for us, and it's mostly an H1 trend.

Yeah.

And that's pretty much in our inventories already because what we're trading, what we're talking about until the middle of the year into early Q3 is already in our books. So there's a reasonably high level of certainty from that perspective. The 2.7 to 2.3 question.

Yeah, so the key drive of Alex is, of course, first of all, the EBITDA improvement. But secondly, also the further improvement in working capital. But I think it's important to mention here that from a cash flow perspective, the big cash flow impact has been in 2023. In 2024, from a working capital perspective, it will be less because what we see in our plans is that it's an H1 and an H2 story. From a volume perspective, be a little bit more careful in the first half where we see a stronger volume development in the second half. So you need to take that also into account in the development of working capital from an absolute perspective.

Because from a percentage perspective, you saw that we went from, what is it, 18.6% to 15.1%. If you adjust for hyperinflation, it's what, 14.6%, I think. Correct. And our aim is to get back to roughly 13% of sales and working capital, but we're also aiming to grow volumes in 2023. And some of that is a bit backloaded. So depending on the sort of end of year conditions, we might deliver that percentage of sales and working capital with a higher absolute number if we, actually my math doesn't work, but if we see that volumes are more positive than we expected, uh, than they'll mean, you know, slightly higher inventory. So all in all, if your question is, is there an element of cautiousness? So also if I convince Mark Martin to, uh, you know, uh, allow me to pull the trigger on a small acquisition at some point that we don't have to come back to you guys every five minutes by saying, Oh, by the way, we bought a business for a hundred million and, uh, and our, our target for the end of the year has changed. So it's, It's a little bit of a balancing act, but that 2.3 number is a good number. And once again, you know our aim is to get to the two times level and to resume the normal discussions on capital allocation, which we see coming in the second half of the year. Yeah.

Thank you so much.

Thanks.

Our next question comes from Matthew Yates with Bank of America Merrill Lynch. Your line is open. Please go ahead.

hey good morning everyone um a couple of just small ones really um you're guiding a pretty sizable 100 to 150 million of identified items in in 2024 how much of that relates to the industrial transformation um and how much falls outside of that into other sorts of items and my second one i think it's a follow-up on what lauren may have asked so you mentioned that you had 200 million of cost inflation last year, of which you offset roughly half or so. Any indication on what sort of cost inflation you're budgeting for 2024, and equally what proportion you might be able to offset? I think when we met late last year, you did mention about some new wage agreements, for example, that had been negotiated. Thank you.

Yeah, I'll take the second question. Martin will take the first question. 23, as you said, was $200 million. We managed to neutralize that through our actions. If you look at the net number, you can make the point that there's about $30 million that's missing, but this is a reflection of our cleanup in terms of slow-moving inventories. It doesn't really have to do anything with structural costs. If you take 2024, you can roughly assume a $200 million number again, but that number is is in part inflation and it's in part investing in our growth and in our future. So we can neutralize about half of that number through continuous improvement and efficiencies. And the rest of it has to come through pricing. So we're not saying we're going to do 100 million in pricing in 2024, but we're saying that pricing will contribute. And once again, it is investing in growth because we believe that we'll be growing low single digit for the next few years. And we'll have the operational leverage, but we also will invest to support that growth. Martin?

Yeah, on the identified items, the 100 to 150 million, I think there is, of course, and I cannot be precise here, but there is an important part of the industrial transformation as part of the identified items. But it's a little bit too early to tell. We come back on further precise milestones by the middle of this year. And you will probably appreciate that our savings are back-end loaded. But it means that our key actions need to be front-end loaded to be able to realize the savings by 26, 27. Yeah. Let us come back with the precise milestones mid-this year, and then there will also be more visibility how this shapes up.

Yeah.

And once again, as Martin said, it's not because we don't want to answer the question. It's because there is a calendar to these social consultations. And if you start throwing out numbers, then you create a lot of anxiety that doesn't really suit a purpose at this point. We'll be explicit in the middle of the year. We'll understand.

Thanks very much.

Thanks, Matthew.

Other questions? Our next question comes from Jeff Hare with UBS. Your line is open. Please go ahead.

Yeah, good morning, and thank you for the opportunity to ask a question. I just wanted to come back to the slide you've given on the sort of medium-term volume growth targets. I was just wondering what gives you the confidence of being able to deliver on the low single-digit volume increase per year up to 27, given when we look historically at Axos business, the volume growth is lower than that.

Yeah. You're historically, factually right. The past is not always a good predictor of the future, I guess, you have in your presentations. So what we have here is we've got, we try to break it down in order to give you guys a little bit more reassurance and underpinning. The first point that you have to look into is that it's the percentage of volume column, because it reminds you that we have certain businesses that really distorts the picture at XO. So for example, the industrial coatings business in itself is 25% of volumes. When that business has a bad year, it really screws all the numbers downwards. Now, industrial coatings is pretty much at a trough currently. So there's a lot more upside down the road than downside industrial coating. That upside is not going to materialize very quickly. This is why we're guiding as flat. But we don't believe that will be a drag. Now, if you take our deco business, Europe is still at – sort of low, low, low to mid-ish single-digit volume percentage down versus 2019. There's structurally no reason why Europe decoction returned to 2019 levels. If you take that as a 4% number, for example, and you say that recovery happens over the next three years, which we think is roughly the timing, That means that structurally you have a little bit of volume growth, whatever we do with market share. And on top of that, we do have market share ambitions. So, you know, DECO EMEA, flat-ish, it's a bit up in the first few years and structurally flat beyond that. But that's a reasonable analysis, we believe, based on the state of our business and the structural aspects of the European market. Now, Deco emerging markets, I think we'll all agree that these are countries that should be generating volume growth structurally because of population growth and emerging middle classes and so on. So that leaves you with the questions on powder and marine and protective. Marine and protective, you guys all know the story. We're the market leader in that space. We lost our way a little bit. We showed a very strong momentum in 2023, both in terms of volumes and in terms of profitability. we still have a lot of runway in front of us. And order books and shipyards are full until the end of the decade. So the combination of the strength of our portfolio, our early investment in sustainability, and the fact that we are probably the strongest name out there, but our market share currently doesn't reflect the strength of our brand and our product range, I think that gives us also an open road in front of us. And I mean, open road sounds pretentious. We have sizable and very competent competitors, but we are one of the strongest franchises in that business. And then powder, everybody's been talking about powder and some of our competitors are talking about it as if, you know, with the zeal of the recently converted, but we are the market leader by a factor of two. And we've been talking about powder for a long time. We invested in powder early on. And powder has structural tailwind because of the liquid to powder conversion, because of the expansion of opportunities in powder given the lower cure aspect and the other substrates and so on. And And then your argument can be, well, is the growth of powder, is it going to happen at the expense of the liquid coating businesses? And we have an interesting positioning in part because, for example, if you take automotive, we're largely absent from the automotive space in liquid coatings. We're new build, I'm talking. We do a little bit of work in light vehicles and trucks, but in cars, we don't do body panels. We don't do any of that. And powder coating, as it develops, the finish now is incredible. The metallics are really good. I mean, we do powder coating trials with some of the EV players on body panels, and the results are exciting. So the combination of the structural aspects of the development of the powder market, which apply to all players, plus the unique aspects of AXO with our products, really leading product range and portfolio and our advance in sustainability, I think that that makes us a strong candidate to grow mid-single digit in powder in the next few years. So hopefully I didn't give you the impression I was rehashing the same stuff, but we think that there's a strong case for this. And then I'd finish by saying that if you look at Axel over the decade, A lot of the non-growth has been essentially the result of arbitrating for profitability, which has been I get out of markets where I think that I can't compete or I can't compete at those price levels, and I give up those volumes. Now, we're not a volume player. We'll never be a volume player. But if you take the power market as an example, We're very strong in premium. We're less represented in the mid-market. Mid-market powder margins in the U.S. are equal or higher than premium market margins in powder in Europe. So we have to be a little bit more selective in how we think about the mid-market. And there are really good battlegrounds for us in which there is technology differentiation, and we intend to capture that. And that also leads to operational leverage. So a long answer to a short question, but hopefully that gives you a sense that we're excited about this and that we are willing to defend that commitment.

Thank you. Yeah, that's fine. Thank you. Can I just ask a slightly different question? Just on the Q1, 24 EBITDA guidance that you've given a 340, if I caught Martin's comments right. Can you just explain where the, is that a volume driven to get from either Q4 or even Q1 last year, is that mainly driven by volumes or is it mainly going to be the net pricing benefit you're getting through to get to that number?

Yeah, Jeff, this is Martin. For Q1, it's mainly driven by margin expansion because the Q1 volumes will be slightly up, I would say. We also talk about comps, and specifically if you talk about China, if you remember, DECO China had a very strong rebound post-COVID in the first quarter of 2022. And it is likely that the volumes of China might press our volumes down. So that's why I talked earlier about the first half and the second half. where the volume growth will be relatively stronger in the second half versus the first half.

And Jeff, without minimizing your commitments, Q1 is essentially Q4 minus the hyperinflation. Because Q4 EBITDA was 313, hyperinflation was 23. So you're talking 336. We're guiding for around 340. It's not... It's not predicated on anything magical. Once again, I'm minimizing our commitment, so I kind of feel I'm underselling here, but just to give you the full picture.

Better to undersell than oversell.

Yeah.

Thank you. Thank you.

We now turn to Chetan Udeshi with JP Morgan. Your line is open. Please go ahead.

Yeah, thanks. The first question was a bit more technical, but just worth trying. You know, the hyperinflation accounting, which you are saying is a negative on earnings. I'm just trying to understand, don't you have the benefit of hyperinflation on pricing? Because I suspect in some of these hyperinflationary economies, your prices are up maybe 50% just to compensate for the high inflation in the business. So can you maybe break out how much of your pricing in Q4 is actually driven by these hyperinflationary economies and is that actually a number which is included in the earnings headwind or is that not part of the hyperinflation accounting impact number? And the second question was just looking at your payables, we've seen a decent decline I was just curious, you know, when you compare your payables in terms of volumes today versus what you might have been buying before, let's say, the buildup of 2022, are you now back to, you know, from a volume perspective to a more normalized level? And the reason I'm asking this is who knows what happens with the Red Sea dynamic, but I'm just curious that you've not cut that purchasing time to such a level that then you have to scramble again for materials if the RETC, you know, sort of disruptions continue.

Chetan, thanks for your question. And actually, thank you for your note earlier this morning. You called the results decent, which I'm excited about. I feel this is a turning point in our relationship. And Martin and I are excited. What we'll do is I'll take the hyperinflation question, and Martin will take the payable question. So the hyperinflation question is, you're right. I mean, in countries where we have hyperinflation, we adjust pricing continuously. And this is why, for example, when we talk about pricing, we say that it's a mixed bag of places where we have pricing power, areas where we have to give up pricing based on contractual commitments or market pressure, and an inflationary element in Argentina and Turkey. We separate those numbers. So we're price positive in Q4. We're price positive, even excluding hyperinflation in Q4. I think the pricing in Q4 is, what, 4%? And the hyperinflation? 2%.

Yeah, pricing was 2%. But the hyperinflation, so what happens here, the 23 million impact, is really going back. There was a massive devaluation of the pesos in December, and the accounting goes back to the 1st of January of 2023 to revalue the balance sheet and all the accounts for the full year. And that's why at the end of the year, you see such a massive impact.

If I can say something, I'll have my rant on IFRS, and hopefully Martin will not cut off the microphone while I'm doing it. But You know, look, hyperinflation accounting, you have elections in Argentina. They devalue in whatever, the 20th of December. We have to restate the whole year now. You know, that year, the profits are already in. They've already been converted to hard currency. So, you know, it does feel like it overstates the impact to some extent because it's a significant impact to take in the quarter for a full year adjustment. But That's what IFRS hyperinflation accounting is, and that's what we apply. But these are good businesses. These are just good businesses, Argentina and Turkey, where we have to minimize our receivables exposure because we are making good money in these markets. But if we stay exposed from a receivable perspective, then we have an issue. That means that we have shorter payment terms so that we make the economic equation work. But it's a little bit of a juggling act. Martin, back to you.

Yeah. So your question on the volumes, I mean, if you look where we are now, volumes have normalized, and therefore also, because you were referring to payables, payables have normalized. From a working capital perspective going forward, the opportunity is further to drive our inventory levels down. We've always said that we want to ultimately get to a normalized level of roughly close to 90 days. We are not there yet, so Step by step by step, we will get there. But overall, working capital elements, including payables, have normalized. Shaitan, did we answer your question? Do you have a follow-up?

No, I just wanted to clarify. I didn't hear a number, but how much of your pricing, which was 2%, is actually due to just the hyperinflationary economies? Do you have that number? Within that 2%, how much would be the impact from Turkey and Argentina? I mean, I can follow up separately. It's fine if you don't have it to hand.

We don't have that exact number here, but it is included in the 2% price mix. But even if you would take these, as Greg mentioned earlier, if you would take those effects out, Argentina and Turkey would pricing still has been positive and that's the, that's the most important. So we, we, uh, we, we look at it of course, separately per business and per business segment.

Yeah. And, and, and Chetan just, I mean, I stated it, but I'll say it again, as we look at pricing at Exxon Nobel, we, we actually separate Argentina and Turkey. Uh, so we don't, uh, you know, we don't let, uh, those, uh, those inflationary numbers, uh, distract us from the task at hand, which is to, uh, have a dynamic pricing policy and to make sure that we capture the value and that we neutralize some of the inflationary trends that we'll still be exposed to for the foreseeable future. That's clear.

Thank you.

Thanks a lot.

We now turn to Christian Faiz with Kepler Chevron. The line is open. Please go ahead.

Yes, thank you. Good morning, Greg, Martin, and Kenny and team. Two questions, please. Sorry to come back on FX slash hyperinflation, but can you please share with us your expectations for further FX impacts on your P&L in Q1 coming from these hyperinflation countries such as Argentina and Turkey? Or would it be correct to take your roughly 4% exposure to hyperinflation countries times the FX devaluation there? And then second, coming back to China, I noted your comments on DECO, but any growth trends in China for your overall business you can observe that are worth sharing, or would you only see growth momentum returning after the end of the Chinese New Year celebrations? Thank you.

All right. Thanks a lot, Christian. I'll take the China question, and Martin will take the Forex guidance question. China is really interesting because the – when we talk about China at Exxon Nobel to the, to investors, we have a tendency to focus on Deco China because it's a business that we report separately, but, uh, coatings in China is also very significant for us. And, uh, the coating market has been really good. So, uh, we're, uh, we have, uh, we have, uh, double digits, uh, volumes in, uh, coatings in China, uh, volume growth in coatings in China and Q4, for example. Um, so, uh, In a market where people have the impression that China is a depressed economy, I mean, there are challenges, particularly on the construction side of things. But our coating businesses are doing really well. And once again, double-digit, low-teen volume growth in coatings China in Q4. On the deco side, it's a market that is – It's a market that is growing. If I take the Q4 numbers, we're talking low single-digit volume growth. Q1 is going to be a bit more challenging because you had, you know, in the first half of the year in 2023, you had the post-COVID rebound. So, you know, the numbers will not look as enticing, I think, but the Chinese market Deco market is continuing to grow. It's continuing to develop. The challenge for us is not our exposure to new construction, because we are not. We've had a tendency to de-emphasize the new construction market for deco. So we're in the market number two in retail in China for decorative paints. The challenge that our competitors were very active on the project side, so on the new construction side, and therefore they've shifted their their capacities to the retail market. And that's creating a little bit of price pressure. But we saw price erosion in DECO China in 2023. That has now leveled out. And it'll be interesting to see what happens after Chinese New Year. Nothing's going to happen between now and early Chinese New Year. And then we'll see how the market develops beyond that. But we remain positive on DECO China. It's just a a slower recovery with a bit more pricing pressure than what we were hoping for a year ago. But it's still a market in which we're competitive and we're actively defending our number two position in retail. And once again, coatings is a really good market in China. So a tale of really two different dynamics. Martin, the FX question?

Yeah, Christian, on the FX, first of all, I mean, we do not speculate about FX and how FX will evolve. That's also not our steel and it's very difficult. But I think what we've done for Q1, and we said it earlier, we've guided for just a bit down of around the 340 million. That is basically the Q4 run rate excluding hyperinflation. which implicitly says that we do not expect these kind of impacts in the first quarter. The reason only already is what I said earlier, an hyperinflation impact becomes larger towards the end of the year if there is a massive devaluation, because we then have to revalue completely back to the 1st of January. So, again, we do not expect material impact in the first quarter per our indication earlier.

Okay. Thanks a lot. And then we'll wait for the next question so I don't start my IFRS rant again.

Our next question comes from Aaron Ceccarelli with Barenburg. Your line is open. Please go ahead.

Good morning, and thanks for taking my questions. I have one on your midterm guidance. When you look at 27, 26, 27, what assumption are you making for gross margin?

I mean, we're already guiding on EBITDA percentage, EBITDA, CAGR volumes, and return on invested capital. I think we're already tackling quite a few elements of our P&L and balance sheet. We're not guiding mid-term on gross margin.

Okay. And maybe one question on EMEA Deco. Can you provide a little bit more color around the performance in the South and Eastern Europe, which has been quite good compared to the rest of the continent? Please. Thank you. I think the performance in South Europe and Eastern Europe was better than Central and North Europe. So maybe if you can provide more color around this would be great. Thank you.

I'm trying to think what I can tell you granularly. Not because I want to avoid your question, but I'm not sure I can give you an intelligent analysis per market. You know, the big drivers of our DECO business are really it's the UK and the Benelux. That's the 500-pound gorilla in our business. And everything else, it's a mixed bag of trends. So we see markets that are overall heading in the right direction. We're not talking about significant volume growth, but we're talking about volume rebounds. The exception is probably France, which from a retail perspective has been complicated. and a Nordics, which have been, uh, also complicated, but everything else has been, has been okay. And as it's all kind of trending, uh, according to consumer confidence, which is really the main driver of our deco business in Europe, because it's a renovation business really. So, uh, the, the sore points for us are France and Nordics and, uh, and everything else is kind of going around the same lines. And then, and then the, the, the actual percentages will be a factor of what the baseline is from a year ago. But, uh, Yeah, think about France and Nordics as areas where we have to raise our game and everything else is moving according to the trends that we highlighted. And once again, we see opportunities to continue managing pricing, although we have to be conscious of... of the trends in the market in terms of purchasing power and consumer sentiments, but we will have active pricing discussions in all these European markets in 2024. I think it's really important as a business and as an industry that we resume that general hygiene of having discussions on price versus inflation every year, because for a long time we lived in a world with no inflation, but now we're in a world with inflation for the foreseeable future. And that has to be a regular discussion that we have with our retail partners.

Anything else? Just a clarification on your raw materials guidance for 2024. So you said it's mid-single-digit decline for the full year?

Yeah. So maybe to clarify, Aaron, so the first half, we continue to see high single-digit decline in line with what we've seen in Q3 and Q4 in 2023. We will see similar in the first quarter and the second quarter of 2024. And then in the second half, we will see it flat to probably, even if we look at the current indexes, slightly up in Q4. So if you all middle that out, you get to more or less what Greg said earlier, an increase single-digit to, what is it, low single-digit to mid-single-digit percentages down.

For the full year. Okay. Thank you very much.

For the full year. Which, by the way, is not, I mean, from what our competitors have talked about, it's not disconnected from the views they've expressed. So we're all kind of seeing the same thing. And any discrepancy will be a geographical discrepancy because, as Martin said, there are markets where China, for example, the indices are going up currently, but these things come and go, and some of those aspects are very geographical dependent.

We now turn to Peter Clarke with Societe Generale. Your line is open. Please go ahead.

Yeah, good morning, everyone. It's a question, I think, for you, Greg, actually two bits to it. The low single-digit projection in organic agriculture Volume growth seems pretty sensible not to be ahead of that. I'm just wondering how important you've seen mix in that because obviously your faster growing businesses are the higher margin ones, marine protective powder, all to refinish. And then obviously you have the industrial maybe flat. And then following on from that, I was just having a quick glance back. It's amazing that it's back to 2018 when performance coatings had the higher EBITDA margins. of the two divisions and i'm just wondering your thoughts on where that goes and when it overtakes deco again because inherently this should be the higher margin business you've got some industrial transformation benefits that kick in particularly towards the end of the time frame there uh and it should you be doing better and obviously the mix mix effects that i was just talking about so just those two issues thank you thanks peter um uh

Two good questions. The low single-digit volume growth, I think, as you said, we think it's a reasonable target and assumption. The mix aspect, what you said is almost correct, and the almost is probably our fault. Hopefully, we're not getting ahead of ourselves. Powder is a higher-margin business. Marine Protective is a business that had suffered over the last few years, where profitability went from being in the mid-teens to bottoming out in 2022 in the low single digits. It bounced back in 2023 to the high single digits. In 2024, we'll cross the double-digit threshold. And over time, we're going to get back to the mid-teens. So if you extrapolate a few years out, marine and protective should be one of our higher profitability businesses, but it's not currently. So therefore, you've got the volume trend that's essentially happening at the same time as the margin rebound trend in marine protective. So it's a little bit more balanced than what you mentioned, but otherwise, your comment was directionally correct. And coatings versus deco in terms of profitability, I mean, You know, there's good trends on the coating side, but what we've seen in DECO over the last few years is that DECO has significant pricing power. And I think at times the market, and certainly AXO, has underestimated the pricing power of what are essentially branded products. You know, it's a really important discussion to have in a European context because a lot of investors that we see ask us questions that are really chemical industry-related questions. They behave as if paints and coatings are part of the chemical industry. But the reality is that the deco business is really more of a Unilever, Procter & Gamble kind of branded product, B2B2C distribution kind of thing. And what we saw during COVID and we're still seeing now is that Consumers are loyal to brand. They trust the brands. And if you manage those brands correctly, you're able to price. So I agree with the point that the technology differentiation is higher in coatings. These are B2B applications that have specs and where you can have really performance as a significant differentiator. But the pricing power in DECO is not to be underestimated. So I couldn't give you as clear a view as that as to which business should be more profitable over time. I think it depends on where we are in the market cycle.

Martin, you want to add anything to that? No, I think that's a very balanced picture across the businesses. Any follow-ups, Peter?

Yeah, no, that's very helpful. Can I just add, the incremental margin you're getting on fresh volumes in marine protective, I presume they're pretty high though. Would that be right on the incremental volume you're getting there or not yet?

It's partially right. So I'm sorry I'm giving you like the answers or qualified answers to your questions, but I think it's interesting to understand. In marine protective, if I think marine in itself, marine is a business where... You've got the new-build market, which has structurally lower margins because it's a large volume sale to a concentrated buy side, the shipyards. So therefore, it's structurally going to be lower profitability. But the money is made disproportionately in dry docking and sea stores. Take dry docking most significantly. Now, dry docking, you know, you have The guy who does the OEM paint has a 70%, 7-0 capture rate in dry docking. So essentially, what you have to do is you have to have a new build business in order to feed the dry docking business, which means that if you take kind of the lifetime sale and lifetime profitability, the margin is a little bit backloaded. Now, you can look at it by saying, well, then that means that in the first few years, you're going to book lower margin volumes so that you can feed the beast later on. But Actually, the reason why we're stepping back dynamically into this market is that the new-build market used to be a commodity market almost. And with sustainability and the emissions directives for ships, what you have is you have a market that favors increasingly biocide-free antifouling, which is a really technical product in which we lead. And favors technical solutions that limit drag because energy is a big cost item. And it's also a big generator of emissions. So that means that the new build market has, as long as you tackle more technical ships, has higher profitability than it had in the past, which is why we're comfortable in our efforts to develop. But it's still lower profitability in the dry docking. So it's kind of like a two-pronged thing. Initially, you're going to see the volumes clicking in at decent margins but lower than the dry docking stuff. And then you see the dry docking thing, which is kind of the second stage of the rocket that starts firing kind of three years out. So in terms of building a mental model, that's how I would think about it. Does that help?

Got it. Yeah, yeah, it certainly does. Thank you.

Thank you.

Our next question comes from J.D. Pandya with Onfield Investment Research. Your line is open. Please go ahead.

Thanks. I want to ask on raw materials a little bit more long-term question. Most of your raw materials, at least that we can track, are in overcapacity zone right now. And a lot of your suppliers are talking about utilizations in the 70%. So I'm just curious, first of all, are you getting a lot of inquiries for volume contracts, you know, on a longer basis? Because I guess volume is really key for the coating supply chain. And, you know, what makes you think that raw materials actually will go up in Q4? Is this more overall inflation comment you're talking about, or was this more raw material specific? That's my first question.

Let me get into that one first. I'm sorry, ask your second question and I'll answer the first one. Go ahead.

Yeah, no, sorry, Greg. I was just saying it would be great if you do an acquisition, but I just wanted to check on the previous three that Martin has made, you know, on Grupo Orbis, I guess Kanzai, and also the old BASF acquisition. So what's really been the progress of these acquisitions? Like you bought them at very low profitability. So are they now at par with Axo Profitability? Or what is the path recovery? And then last question for Martin is on free cash flow. Should we expect a flat free cash flow this year? So around 840 again for 2024? Thanks a lot.

All right. So Martin will take the free cash flow question. Acquisitions, BSF is a long time back. Orbis, we're delivering ahead of the investment case. Orbis was a lower profitability business than our DECO business in Latin America, but as part of our investment case, we have a path towards getting it to that profitability, and we are delivering on that path. So we're very happy with Orbis. It's a good acquisition. I can say that with the confidence of a guy that had nothing to do with it, but I'm the happy recipient of a good transaction, and you'll continue to see margin uplift from delivering our plan on Orbis and our Synergy plan. So that one's good. Kansai has gone away and it's gone away for good. So the Kansai deal is over. It's not coming back. And we're focusing on the leveraging. So acquisitions are not really a significant topic for us in the months to come, certainly not in the first half of the year. Your question on raw materials is, it's kind of a macro question, which it's interesting to understand the trends. You're right that a lot of what we buy is in markets where you have overcapacity, but that is dominated by the Chinese markets that produces all those components and those chemicals and does have overcapacity. Now, anytime the Chinese economy picks up a little bit, then suddenly you see the raw material index in China going up because the domestic market has historically been a significant consumer of these products. And when the market is down, then there's more volume to be redeployed in other parts of the world. That leads to interesting dynamics, which are that in Europe, you're able to purchase landed products from China that are significantly cheaper. That's what's being produced in Europe. But if you do that, then you are essentially increasing your exposure to China, which means that most players like us, we know we... We manage dynamically, and we kind of play with the line a little bit, but we try to make sure that we keep a component of European supply, if only in terms of geographical de-risking. Whenever you want to say something smart, you quote Larry Summers, and he said, we're in a world, we've gone from a world of just-in-time to a world of just-in-case. And just-in-case means that I need to make sure that geographically I have dual sources of supply, which means that I will continue buying for part of my supply, raw mats at a higher price from Europe than landed from China. But once again, it's a balancing act. And then the final thing is that all these global players, and particularly the ones in Europe, they look at the trends and they spend a lot of time thinking about whether they should shut down capacity or not. And if they do shut down capacity because they're not economically viable, then in all likelihood, you're creating an opportunity for the Chinese economy to start pricing up these raw materials. So, you know, it's kind of like if you go all in on where it's cheap, be careful what you wish for because there are consequences and everything's interconnected. Does that help?

Well, it kind of does. I was just wondering because, you know, the coating supply chain lost 15 to 20% volume last year. And you guys, along with some of your peers, had roughly flat volumes. And that just tells me, you know, when I speak with the coating suppliers, they're crying for volume. And that sort of was what I was referring to. Are you looking at a lot of these volumes?

Yeah, that was part of your question. And I forgot that part. Yes, when we When we have discussions these days, we have discussions with suppliers that are more focused on locking in volumes than on price, which creates an opportunity. But we'll see how that evolves over time. Martin, there was a free cash flow question.

Free cash flow. I mean, we have not given guidance on free cash flow, just to be very clear. But to think about this is, first of all, of course, we've indicated the... the adjusted EBITDA guidance for 2024. We've also indicated that we will invest more in CAPEX, plus 50 million, to support the industrial transformation. And I've indicated earlier from a working capital perspective that 2023, we've seen from a value or an amount perspective, a pretty big takeout in terms of working capital. That will not be the case in 2024. Yes, the percentage will go down, but given the fact that our plans are more second-half loaded, the takeout in terms of amount of working capital will be substantially lower. So these elements are at play. And that is what you have to think about without being specific or giving any guidance on the free cash flow.

All right.

Thanks a lot.

Thanks.

Other questions?

I think we've got one more.

Chris Cunningham with Jefferies. Your line is open. Please go ahead.

Thanks, guys. I had a short-term and a longer-term one. Firstly, sorry, Martin, to come back to Q1, but just to understand your $340 million. So I get the Q4 equals Q1x hyperinflation, but I think you also said you had some inventory devaluation throughout the year and presumably in Q4, and you normally would have some positive earnings seasonality quarter on quarter. Or if I think about it from a year-on-year perspective, you're saying flat volumes and pricing... with, I think, Greg, you said, a raw benefit of $130 billion year-on-year, which would get me well above that. So I just wanted to try and figure out what I'm missing in that math on the Q1 guidance. And then on the medium-term plan, I think you said, Greg, last time we caught up, a dozen or so plants in Europe are operating at suboptimal utilisation rates. I think you mentioned a number around 50%. I assume it's too early to give an update operationally as to what is changing or what's either happened already, but given that sort of plan can't happen overnight, but maybe more as an operational question as opposed to a financial savings question, what we should expect to be happening on the plant rationalization side in 2024. Thank you.

Thanks, Chris. I'll take your second question, and then we'll go back to your first question. We've got 133 plants around the world. A bit less than half of that are in Europe. In DECO, we have a bit less than 30 plants in Europe. Capacity utilization a year ago was in the mid-50s. Our aim is to get capacity utilization to the high 70s. We don't want to go higher than that because these are seasonal markets. And if you start being too tight in terms of capacity, that means you've got to build up inventory, which also comes at a cost. So think about going from the mid-50s to the mid-70s, roughly. We said that that would involve closures. And as we alluded to earlier, we'll be in a position to make those first announcements this summer. It doesn't mean that we're not working on this in the meantime. What you've got to do in order to be able to close a plant is to decide where the volume is going to go and to reformulate the products for the raw materials that are already in use in the receiving plants. Otherwise, you're transferring complexity and it ends badly. And all of that is important because service levels at times have been an issue for us and for the industry in general, particularly coming out of the raw materials cycle. And in Europe, we're back to service levels in the 90s. And that really underpins our ability to grow and to capitalize on opportunities going forward. And we don't want to jeopardize those service levels. So It's all coming. First announcements will be this summer. The work is already underway, and it'll be done in a way that where the preparation happens up front so that the service levels are protected.

The other question was on Q1 versus Q4. I think, first of all, I think it's important to mention that Q1 is a relatively smaller quarter. The big month is always in March as the deco season starts. So that is a key driver for our Q1 results. But overall, what we said as the key elements is volumes will be flat to slightly positive. Pricing will be flat. costs will be more or less flat. There are some pluses and minuses. I think it's also important to mention that some of the CLA agreements start to get into our numbers on the 1st of January of this year.

Collective labor agreements, for those of you who don't speak EXO.

Sorry, collective labor agreements. And the margin expansion will be very similar as Q4. So So most of the elements are similar and we will see how Q1 evolves. And as I said, the most important driver ultimately for the Q1 result is always March, which is for us a big month.

Okay. Are there other questions or we don't know?

Chris, if that answers your question, I think we can wrap up. Operator?

I think we're at it. I think we're out of questions, and you guys are probably out of time because you invested a lot of time in that discussion with us, which we appreciate. To wrap up, we're happy with the developments that we saw in Q4. We see good signs on the volume side of things. We continue to be very disciplined from a pricing perspective. And we enter 2024 with positive momentum and more margin expansion to come. So we will work to deliver on our plan in 2024. And as we said, we have midterm targets that go beyond that. So we look forward to briefing you on the progress in the quarters to come. Thank you again for your time and have a great day.