Akzo Nobel Nv Ord New

Hello, everyone, and welcome to today's Axo Noble Q2 results call. My name is Harry, and I'll be your operator today. All lines are currently in listen-only mode, and there will be an opportunity for Q&A after management's prepared remarks. If you would like to enter the queue for questions, please dial star followed by one on your telephone keypad. I would now like to hand the call over to Kenny Che, Head of Investor Relations, to begin. Please go ahead.

Thank you, Ari. Good morning and welcome to Axonobel's Investor Update for the second quarter of 2025. I'm Kenny Che, Head of Investor Relations. Today, our CEO, Greg Puglione, and CFO, Martin DeVries, will take you through our results. We'll 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 more 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. Good morning to everyone on the call. ExxonMobil had a good quarter in tepid markets. We delivered on the things that we can control. Our gross margin was up 40 basis points year-on-year on price versus raws margin extension, in line with our plan. And our EBITDA was up by 60 basis points on significantly lower OPEX from our efficiency actions. Volumes were slightly down, but above market and Forex, while a significant headwind continues to be limited to a translation impact, as shown by our solid 15% EBITDA for the quarter, despite 24 million of Forex. We generated 162 million of free cash flow in the quarter, despite 49 million euros of identified items cash out, largely related to restructuring. And finally, we sold most of our Indian businesses at 25 times 2025 EBITDA for 1.4 billion euros, while maintaining a royalty stream for coatings. Our teams continue to demonstrate agility and discipline across the board, and we're hitting on our operational and strategic milestones. With that, let me walk you through the key figures for the second quarter. Organic sales were flat, volumes declined by 1%, while price mix contributed positively, with pricing up 2%, partially offset by a negative 1% mix impact. Adjusted EBITDA came in at 393 million euros, or 417 million euros adjusted for Forex. Forex headwinds intensified this quarter, with a 5% negative impact on revenue, marginally higher than the prior quarter. Despite this, our EBITDA margin extended by 60 basis points to 15%, reflecting our pricing discipline and the structural benefits of our SG&A and industrial programs. Turning to the first half, we deliver net OPEC savings of €35 million year-on-year, a significant contribution especially considering wage and other inflationary costs. The SG&E actions announced three quarters ago are now completed, and we've announced five additional site closures in the first half of 2025. Adjusted EBITDA for the first half totaled €750 million, or €781 million, corrected for Forex. Our adjusted leverage ratio stands at 2.9 times, elevated due to seasonality, but we expect this to improve through the second half as free cash flow strengthens. Let's now turn to slide four with an update on our strategic commitments. We continue to hit our strategic milestones. Firstly, we've successfully signed the sale of ExxonMobil India to the JSW Group. This represents a key first step in our ongoing portfolio review. Using the most recent fiscal year results, the transaction values the business at 25 times EBITDA, not including the future dividend stream of 4.5% of sales for the coating businesses. Closing is expected in the fourth quarter. Nets of the purchase of 100% of the powder business, which we will retain, We expect 900 million euros in net cash proceeds. 500 of that will go to deleveraging and 400 million euros to a share buyback, which we will initiate at closing. Secondly, the SG&A program we announced late September of last year is now fully implemented. The annualized benefit is tracking ahead of plan and expected to deliver greater than 150 million euros of recurring savings. and we see more efficiency potential ahead. Thirdly, our industrial transformation is progressing ahead of schedule. We have announced five site closures so far this year, three in Europe, Middle East, and Africa, and two in Canada, with consultations underway. These actions will deliver structural savings and operational efficiencies in the coming quarters. We have done this while continuing to improve our service levels, specifically in North America for marine and protective and for powders. were not operating at high levels of service, a stark difference to two years ago. Together, these initiatives are unlocking value and positioning the company for stronger and more focused growth. Let's now turn to slide five. Future volumes were down 1% year-on-year, an improvement from Q1, supported by DecoChina's return to growth. Let's start with decorative paints. In EMEA, volumes were slightly lower year-on-year. Growth in Western Europe was more than offset by continued softness in Southern Europe. In Latam, Brazil had a slower start to the quarter due to the timing of price increases in Q1, but impact eased as the quarter progressed. Underlying demand remains healthy, and we expect further recovery in the second half. In China, volumes rebounded strongly with high single-digit growth, supported by improving demand and continued pricing stability. This marks a clear turnaround from prior quarters and reflects our strengthened position coming out of the competitive cycle. In Southeast Asia, volumes were flat. Growth in Vietnam helped offset continuing weakness in Indonesia, while consumer sentiment remained subdued. Let's turn to coatings now. Power volumes declined slightly, with sequential improvement in automotive, offset by continued softness in the architectural segment. Despite ongoing market challenges, our focus on higher growth segments continued to support our relative outperformance. Marine and Protective remained the key growth engine in coatings, delivering mid-single-digit volume growth. Protective itself saw strong double-digit growth, while marine began to normalize following an exceptionally strong run in prior quarters. In automotive and specialty coatings, volumes were under pressure, particularly in North America, where refinished demand remained soft. However, aerospace continued to perform well, especially across EMEA and Asia. Industrial coatings was also impacted by weakness in North America. Looking ahead, we remain vigilant to evolving market patterns across regions and segments. Despite ongoing macro uncertainties, our portfolio, strong market position, and disciplined execution underpin a resilient performance. We're well positioned to navigate the current environment and capture opportunities as conditions stabilize. Martin will now provide an update on our financials on Site6, Martin.

Yeah, thanks, Greg, and good morning, everybody on the call. Organic sales were flat in the quarter, volumes declined by 1%, primarily due to continued softness in the North American coatings markets. At the group level, price mix was up 1%, with pricing contributing plus 2% and mix at minus 1%. Foreign exchange rates were a material headwind in Q2, driven by continued depreciation of the Turkish Lira and Brazilian Real, as seen in previous periods, and further impacted by the US dollar and currencies correlated to the US dollar. The translational FX impact on revenue was minus 5%, resulting in a total revenue decline of 6%. Adjusted EBITDA declined by 2%, while the margin improved by 60 base points to reach 15%. This margin expansion was driven by the DECO business, which delivered a strong profitability of nearly 18%. Moving on to our operating results on slide 7, Q2 was a strong cash quarter. with free cash flow of €162 million, which is net of €49 million cash out related to identified items during the quarter. Return on investment came in at 13.2%, lower year-on-year, primarily due to adverse currency impacts on profitability. Operating working capital as a percentage of revenue improved to 17%, slightly lower versus the prior year. The reported figure includes a small impact from the classification of Action Nobel India as assets held for sale following the announced divestment. With that, back to Greg to discuss our outlook.

Thanks, Martin. Our full-year guidance, which we provide at Constant Currencies, remains unchanged. At current rates, the 1.55 billion euros becomes 1.48 billion euros, a number we expect to beat. This reflects our confidence in the underlying strength of the business and the resilience of our operating model, despite ongoing macroeconomic uncertainties. We continue to focus on what we can control, and our teams are executing with discipline to offset external headwinds. Looking ahead, we're focused on driving further profitability expansion with clear mid-term ambitions to achieve an adjusted EBITDA margin above 16%. We're on track to reduce leverage to around 2.3 times by year-end, reflecting current Forex rates and expected delivering proceeds from India, while maintaining a strong investment-grade credit rating. I'll now hand over to Kenny. We'll close with information about upcoming events, and then we'll move to the Q&A. Kenny?

Thank you, Greg. Before we start the Q&A session, I would like to draw your attention to the upcoming events shown on slide 9. We will update the market on our third quarter results on October 22nd. This concludes the formal presentation. We would be happy to address your questions. Please state your name and company when asking a question and limit the number of questions to two per person so others can participate. Harry, please start the Q&A session.

Thank you. Our first question today will be from the line of Thomas Rigglesworth with Morgan Stanley. Please go ahead. Your line is now open.

Thanks very much for the presentation and the opportunity to ask a question or two. Firstly, obviously, the Strategic Review of Southeast Asia has completed its first phase. Can you now unpack for us? you know, what the next steps are in terms of your, you know, either strategic review policies or your M&A. You've talked in the past about, you know, shifting to, you know, performance coatings away from DECO. Obviously, that's happening. But what are the next steps, especially in the context of recent Bloomberg reports that you may or may not be interested in parts or, you know, BSF coatings business? So your comments there would be very helpful. Secondly, obviously, the North American market seems to be an area of acute weakness. Can you give us some color as to how that's developed as we've exited the quarter and what you're assuming through the second half of the year and this new guidance around the fallout from tariffs, which seem to be hitting your business more so in North America than other areas? Thank you.

Thanks, Thomas. I'll start with a question on the strategic review and M&A, and Martin will take North America. So we chose our words carefully. We called the disposal of India a first step in our strategic review. It means that the framework we've applied to India applies to other businesses and assets in ExxonMobil. We aim to be a market leader in what we do. In the areas where we're not, we will assess whether we can get to a leadership position or whether that business would be better owned by somebody else. And in DecoAsia in particular, we have a mixed bag of leadership positions and follower positions. So there's more that we're looking at in that part of the world, specifically DecoAsia, and we will continue to push that agenda forward and to have discussions on some of these assets. Your point on M&A, we're focused on disposals. We're not focused on acquisitions. We don't have the balance sheet for it, once again. And also, we don't need the distraction at this point. So, I think it was a Bloomberg report on BSF. Well, we've made it clear in the past that there are things in the BSF coding portfolio that are of interest to us, but To be clear, we've been in discussions with VSF to evaluate the opportunity, and we've not committed to their main process. We have not committed to their main process. I'm repeating this so that's really clear. And the reason for that is that, you know, BSF is looking for a cash transaction, and this is not something that we'll do. So we will keep an eye to see how things are evolving, but we're not committed to their main process. Hopefully that clarifies things. I'll take a follow-up afterwards if you want, if I haven't been crystal clear. But in the meantime, I'll hand over to Martin to talk about North America.

Yes, so on your question on North America, I would say that is really a reflection of current uncertainty with our customers, which is partly also driven by the whole discussions around tariffs. Towers, by the way, are not for us a topic, because we are very much local for local, but more for our customers. But moving forward towards Q3, we don't see any change in the dynamics in North America for Q3. And the only positive point in North America, particularly for us, is protective, which is growing strongly. But the rest of the business are showing weakness due to, as I said, uncertainty. Thomas, did we answer your questions? Do you have a follow-up? Yes.

No, that was very clear both. Thank you very much. Deeply appreciated.

Thank you.

The next question today will be from the line of Laurent Favreau with BNP Paribas. Please go ahead. Your line is open.

Hi, good morning, and thanks for the crystal clear answers, Greg, on this matter. Two quick questions, please. The first one is overall on NICS. I was wondering if you could describe, I guess, some of the main moving parts on NICS that impacted the quarter and how you're thinking about those for the rest of the year. And then more specifically, can you talk about Turkey and the impact that you had on the phasing? I think you quantified that in Q1. Can you do that for Q2 and talk to us about how, I guess, you're confident that this is more of a phasing thing rather than an underlying market or market share topic? Thank you.

Let me take the MIX question. If you look at Q2, MIX has been mainly driven by two areas, two geographies. One is China Deco and the strong rebound in China Deco, but on the other hand also by the weakness in North America, which we discussed earlier. And if I fast forward into Pew 3, we will see a similar negative mix impact based on both key drivers, the rebound in DECO China and the weaknesses I discussed earlier in North America.

Turkey, we said that we were rebalancing our commercial conditions so that our customers would stop using our products as a currency hedge, as a devaluation hedge. So the shift of volumes out of Q1 was really the consequence of that adjustment in commercial policy. As we look into Q2, we're less confident that we'll have the corresponding rebound in the second half of the year because the Turkish DECO market seems to have slowed down pretty significantly. It's a bit too early for us to... have full visibility on how that will unfold in the second half of the year. But right now, Deku Turkey, as a market, is beyond soft. It's down kind of double digits. So we'll see how that goes. I mean, it's a... It's visible in our volumes. It's not very visible in terms of value. So it's more of a semantics discussion on our volume disclosures than anything related significantly to value. Did we answer your questions, Laurent?

Absolutely. Thank you.

Thanks. The next question will be from the line of Aaron Ceccarelli with Ehrenberg. Please go ahead. Your line is open.

Hello. Good morning, Greg and Martin. I have two questions, please. Could you provide some indication or quantification of how your raw materials basket is shaping up for the second half of the year? Also, how are competitors currently behaving in terms of pricing, particularly in the coating segment? And what level of visibility do you have regarding your own pricing in H2O? My second question relates to China. It's encouraging to see that volumes were probably a little bit ahead of your initial expectations. Perhaps could you break down the drivers of this performance? Was there any contribution from customer restocking, or was it primarily driven by underlying demand?

Thank you. Thanks, Aaron. I'll take the first question. Martin will take the second on China. Our raw material basket is improving. It's been improving throughout the year. What that means is that we're still up year on year in terms of raw mats in Q2 versus last year. But when we guided for the year at the beginning of the year, we said that we'd be up in raw mats, low single digits. And it's looking like it's really going to be flat at most. But it's kind of coming in progressively. So Q2 is still higher than last year. Q3 is an improvement, and Q4 should start being a little bit more visible in terms of... Q4 is a small quarter for us, but this is where you should see the recent drops in raw material prices being more visible. Q3 is really already committed, it's already in our inventories mostly. But, you know, the world has excess capacity. Markets are slowing down, even in things like TIO2, which was a big topic at the end of last year. If you remember, some of you guys published reports on the impact of TIO2 tariffs and the fact that it was going to do horrible things to the industry. I mean, it turns out that markets are soft enough that even though you've had these anti-dumping tariffs on TIO2, the TIO2 prices are actually down. So it's a strange world. You know, we're in a world that has regionalized. It has deglobalized. It has regionalized. And you have different raw mat effects in different parts of the world. But overall for us versus what we expected at the beginning of the year, raw mats are comparatively better. And once again, for the full year, you're probably looking at a year that's at most flat versus last year, but not up. But right now, it's still up year on year at the half year. Martin, hold on. I answered raw maths. I didn't answer pricing. I wasn't trying to cheat you out of a pricing answer. Pricing, we've done pretty well in the first part of the year. I think we were up 2% in Q1 and up 2% in Q2. Mix has been a little bit negative, but pricing's been pretty good. Not because it's easy. It's actually quite a battle, and particularly in coatings. In DECO, different game, we have pricing power in DECO Europe, and we've led that with... a decisive action plan in DECO Europe. If I take the coating businesses, there's businesses in which we have pricing power and there's businesses in which it's more difficult. In places like powder, we're the market leader, but the market is very competitive. People are fighting for volumes. It's really hard to extract pricing in powder. We're positive, but we're not as much as we'd like to be. in marine protective, although there's a lot of backlog in the shipyards and therefore there's a strong flow of business for the years to come. It's still also pretty competitive and you have to do value pricing and see where you have added value and differentiation versus pricing across the board. So it's not an easy market in which to price this year. We're happy with where we are in terms of being price positive to the tune of about 2%, as we said. We wish we could do more, but not everybody is as – how do I put this? Not everybody is as determined as we are. But we'll continue fighting that fight. And in terms of visibility for the second half of the year, we got pretty good visibility on pricing in the sense that most of the price increases that will – impact the second half of the year are already in. There really isn't anything that we'll do going forward that will have much pricing impact for the rest of the year, unless we go crazy and we start doing promotions and rebates and discounts, which we don't intend to do. So, from that perspective, we got pretty good visibility. Martin, we'll take China.

Martin? Yeah, in China, a few comments. First of all, stocks in the channels have normalized in China. So to your point, the rebound we've seen in China is very much demand driven. And we see this continuing also in the second half. Fair to say that the comps are favorable, because last year from Q2 onwards, China was very much down for us, so we are getting to a more normal trading level. The good thing also, and Greg mentioned it earlier as well, is that pricing has stabilized. So we start to see positive momentum in DecoChina.

Thank you very much.

The next question today will be from the line of Christian Betz with Kepler Chevro. Please go ahead. Your line is now open.

Yes, good morning, Christian. Christian, if I see you, from Kepler Chevro. Thanks for taking my two questions. First of all, your comment on improved automotive powder coatings, is that battery electric vehicle stabilizing? And also, you give some negative comments on automotive in your refinish business. Is that on the back of changed insurance policies or people just not having their car repaired in inflationary times, I guess mostly in North America? Thanks.

Automotive is quite small for us. It's about 300 million euros of revenue and And about half of it, a bit less than half of it, is actually on commercial vehicles. So we're not the best people to talk about automotive. But if I said anything positive about automotive, I misspoke. The automotive market is at least... From our very limited vantage point, it's currently complicated. I can talk more about refinish. Refinish volumes are down in North America. They're down also in Europe, but it's more striking in North America because people are essentially not having their cars repaired. It's because... disposable income is down, insurance premiums are significantly up, and people are sitting this out and living with a few dings. So at some point that will normalize, but right now there's no signs of an improvement in North American refinish that we can see. Christian, did that answer your question?

Can I come back to your – because within powder coatings, you made that comment that you see improved automotive. Is that the battery electric vehicles coming back a little bit?

No, it's – I mean, there's – we do two things in powder that are auto-related. One is we – We do have a significant position in electrical vehicles because, as you know, powder has insulation properties. It's also very good as an anti-corrosion agent. And therefore, for the battery packs and the cooling of the battery packs of the electrical vehicles, that's a good business to be in. And that continues to be active. You know, we have a significant powder business in China that caters to some of those companies like BYD, and that continues to be a good business and to be active. And then the other important, actually more important part of our powder business that is auto-related is our business on wheels. We do powder coatings on rims, on car wheels. And that business has been a good business, but it's struggled. It's a little bit up and down right now because a lot of those suppliers, a lot of the people that we sell to are based in Mexico and China, and they're impacted by the tariff uncertainty. So it's been a little bit better, but it's by no means out of the woods because the tariff uncertainty remains. So maybe I gave the impression that that was more positive than it was. It's more as it relates to powder. It's been a positive impact in Q2, but still with a lot of uncertainty. Sorry, I wasn't clear, Christian.

Okay, thanks very much, Greg.

Thanks. The next question will be from the line of Matthew Yates with Bank of America. Please go ahead. Your line is open.

Hey, good morning, gentlemen. A couple of questions, please. I'd like to revisit the topic of mix, and in particular within the coating segment. I'm wondering to what extent the margin here was hurt simply by the lower volumes and the operating leverage associated with that, or whether there's anything within the mix that was unfavorable. Obviously, we can see in your price line that it was a headwind, but curious on profitability. And the second question, if I can, was around service levels or what you call, I think, OTIS. What does this actually mean from a financial perspective? If you make progress on this metric, how do we see that coming through the results? Because it's not instinctively apparent in the volume number that you're capturing here. more sales, or maybe you are if you're up from the market. I don't know. But how do you associate the OTIF number with a financial performance? Thank you.

Yeah, that's a good question. I'll take the OTIF question, and then I'll start with that, and then Martin will tackle mix and coatings. The OTIF question is a good one because, as you rightly point out, it's not directly a financial KPI. It's a It's more of an enabler. Our ability to perform at competitive service levels essentially goes to our ability to serve our customers and to adapt to their needs, but also to keep our industrial assets efficient. So when your OTIF is off, then you start having higher supply chain costs, for example, because you have to expedite things, you have to juggle, scramble, you end up with trucks that are not full or, as I said again, things that you have to air freight. You end up with less efficient factories because your factory planning is off. And you see that creep into a lot of the industrial costs, whether it's manufacturing costs or supply chain costs. From a volume perspective, in the businesses where we had unacceptable or insufficient OTIF, which we've improved, we see our ability to grow as being significantly strengthened. And our volumes are down in Q2, but they're down 1%. We see quite a few of our markets in which we think we're more resilient than the market, or at least in what we're seeing from our vantage point. So, once again, OTIF is an enabler. It's a sign of industrial health, and industrial health translates into lower cost over time. But it's hard to pinpoint it exactly on a spot basis. I would also say that OTIF is like a bell curve. You want to be at a certain level, but if you start trying to go much above the necessary levels, it becomes costly for no benefit to the business. So on average for Axo, if we're in the low 90s, we're happy. And there's a mixed bag in our businesses because if you're selling direct, then you want to be higher. If you're selling indirect and you've got distributors and the distributors are holding inventory, then you don't necessarily need to be at those levels. And it becomes kind of a cost-reward equation, which you have to solve business per business. So I'm sorry for the pedantic answer, which It doesn't really help you pinpoint where you put the benefit in your model, but that's how it actually functions at the scale of our business. Martin, mix?

Yeah, so maybe to clarify, because North America is coatings. So you mentioned that, right? So that mix effect sits clearly in coatings. And in North America, yes, we've seen pressure on our volumes, as you rightfully point out. But on top of that, we've also seen a mixed effect in North America driving the overall mix in coatings. So both effects are coming through in our numbers.

And the higher profitability coatings in North America, you know, Aerospace, Veco Refinish. Aerospace is doing well. Veco Refinish is suffering from a volume perspective. The vehicle we finish happens to be bigger than aerospace, you know, so those are the effects that we're talking about to them in the portfolio. Thank you, Craig.

Thanks. The next question today will be from the line of Jeff Hare with UBS. Please go ahead. Your line is open. All my questions have been asked, so I can pass on to somebody else. That was easy, Jeff. Thank you. The next question. And the next question will be from the line of Chetan Udeshi with J.P. Morgan. Please go ahead. Your line is open.

Yeah, hi, morning. You know, first question I had was if I look at your full year guidance on EBITDA, it sort of implies H2 EBITDA, probably similar to H1, when typically I think, again, seasonality is – I mean, debatable these days, but, you know, if I were to look over a longer period of time, H2 is lower than H1 for, you know, a known reason, which is just that your Q4 tends to be much lower seasonally. And now, I guess, you know, second half FX will be worse than first half. So I'm just curious, as you look into your guidance, what sort of gives you that second half comparable to Q4? First half when you have seasonality and FX which are clearly going against the numbers versus H1. The second question is, it's good to see the inventory drawdown in second quarter. If my math is correct, it's roughly 200 million year-on-year, probably like seven, eight days reduction. How much of that is just a mechanical impact from, you know, quarter end balance sheet FX figure, which sort of brings down your quarter end inventory, but probably not the full quarter cogs. But I'm just curious, you know, how much of that inventory reduction is something that can continue into H2 or you've hit your milestone now in terms of inventory? Thank you.

Maybe start with the last question on inventory. It's important to clarify that we've seen an inventory reduction and we internally look very much at DIO. So DIO is a couple of days below last year. But we are still sitting at the DIO, which is above the 100 days. So we still have steps to be taken in the second half, in Q3 and Q4, to get us to below the 100 days, which is as part of our targets to realize the working capital level of 14.5% by the end of the year. So still steps to be taken. And again, internally, we are very much driving... our DIO numbers, because the absolute numbers, as you also indicated earlier, are very much influenced by FX as well. On your first question on the full year guidance, and specifically the second half, I think it's important to take into account for the second half, and Greg alluded to that already, We see a softening in raw material environment, while most of the pricing has been implemented, so we do expect further margin expansion in the second half. And secondly, of course, we do expect further benefits coming through our operational actions. SG&A is now fully implemented, so we will see that coming through as well as our industrial actions. For the full year, we have set $70 million. We do expect that with the actions we are taking that we will be probably a little bit above the $70 million. So those areas are the key drivers for us in the second half, while volume will clearly not be a helpful factor.

If I can squeeze one in, I heard... Greg mentioned at the beginning that you gain share. And I'm just curious if I heard that right. Because if I look at your volumes, you know, they are down 1% year on year. But if I look versus, you know, Q2 2019 or pre-COVID, we are down like 7%, 7.5%. So I'm just curious, you know, where that share gain might be. Because versus pre-COVID, it doesn't feel like volumes are that strong particularly.

No, I mean, the volumes are not particularly strong. You're correct. Where have we been doing well? We've been doing well in marine and in protective. We're gaining share, clearly, in marine. We're gaining share in protective. We gained share throughout last year in powder. Beginning of this year, too, right now, it's a bit of a dogfight. I think some of our competitors are suffering for volume. Let me try to think of other areas. In the deco businesses, we've been doing well in Vietnam, which is an important country for us. So it's... I'm not going to tell you. I mean, market share is a tricky thing because mostly we're comparing with information that we gather ourselves. You know, there's very few markets like the UK Deco market where you actually have the volume information for everybody and you can actually be fully objective as to what is happening. But in our coating businesses, all these areas that I've mentioned have been net positives for us, particularly marine and protective this year, if you're looking for one area in particular. But the comparison to 2019 is another debate. Have the markets fully normalized back to 2019 levels? And the answer is they haven't. But, you know, the world's been a busy place between the various geopolitical impacts that we've had the last few years. It feels that there hasn't been much time for the markets to settle. Hopefully, that'll happen at some point. But this is not what we're banking on. You know, what we're banking on is efficiency, take out costs, be leaner, and that's been paying off this year, and hopefully, that'll continue. Chetan, is that all right? Yes, thanks.

Thanks. As a quick reminder, to enter the queue for questions, please dial star followed by one on your telephone keypad. And if you would like to exit the queue, please dial star followed by two. And our next question will be from the line of Stefano Tofano with ABN AMRO and Bodo BFH. Please go ahead. Your line is open.

Yes, good morning, everybody. So a few questions left for me. I mean, just from my understanding, you're now guiding... above 1.48 on a just a little bit down, let's say mostly corrected for the effects, but with volumes now guided flat to slightly negative, compared to flat to low single digits in Q1 for the last time that you mentioned it. Do I understand correctly that you expect lower volume growth, but compensated by the better raw material and perhaps higher than expected OPEX? So that would be my first question.

Let me take that one right away, Stefano, because we can get it out of the way. The translation from 155 to 148 is solely Forex. It's $70 million of Forex translation. We're not adjusting for volumes. We're giving the volume guidance as an indication. But we think the pluses and minuses that Martin talked about, you know, lower ROMATs, better OPEX reduction will compensate for any volume shortfall. So really... 155 to 148, that's 100% Forex translation. If you have any doubts, reach out to Kenny, and he'll do the math. Go ahead with your other questions.

Yeah, okay, we'll do that. Yeah, I will definitely do that, because I was a little bit confused by the flat to minus compared to the flat to low single digits over the past. So the question is actually... Now, what volume growth is assumed in the 1.48? So I don't know if it's flat-ish or now you're assuming flat-negative, but I can take that later. The second question is, you mentioned on SG&A, the potential, seeing more potential ahead, I think, is what has been said before. If you maybe can quantify a little bit that. And then the third one is maybe a peculiar one, but I assume you looked at bus half assets just to learn something. And my question is, did you learn something?

I'll take the BSF question and Martin can take the SG&A question. Yeah, you know, it's always interesting to look at these businesses coming up for sale because you have a certain view of the world and you see how other people are looking at the same thing but maybe from a different vantage point. And we had a similar, you know, similar discovery kind of experience with the souvenir business, which we didn't take part in. You know, the souvenir was a deco business in Brazil that BSF was selling. We didn't take part in that process. We had, you know, we had antitrust obstacles there. But it was really interesting to see how these guys were performing versus where we were performing. It allows you to benchmark your cost base. It allows you to see how people are accounting for the market. What I told you about market shares, well, sometimes you realize that your competitor sees your market share as really different from what you were seeing. So we had those really interesting moments in Suvinio where we realized that our deco business in Brazil is much more profitable than VSS, this deco business in Brazil, which, by the way, bodes well under Sherwin-William ownership because you know that the Sherwin guys are... These guys are usually price leaders, and they've said that they want to take that business to 20% EBITDA, and I think they've said that that business was around 13% EBITDA. When you have that vantage point, it allows you to benchmark your business, and it also allows you to gain some sort of visibility as to how your competitors are going to behave in the future. And the BSF businesses are a little bit the same for us. I mean, Chemital is something that we're not in, so it's more curiosity as to how that market functions and how it will evolve because we have products that we feel could replace some of the Chemital products over time. If you take, for example, powder coatings, you can make a strong argument that with powder coatings you could do without the surface pre-treatment step. But that's a discussion for another day. If you take the vehicle refinish business, it's one of our direct competitors. And they're similar to us in the sense that you've got the two big guys. You know, you've got PPG and Exalta that are the clear market leaders. And BSF and ourselves, we're kind of the smaller contenders. And it's interesting to see how they look at that market and how they compete versus how we compete. And then the auto business, it's more understanding the long-term auto trends because a lot of things are happening in automotive right now. And it turns out that the BSF businesses have very good exposure to the Chinese automotive market. So that is a market in which we're active with our powder business, but also our refinish business. And therefore, it's all valuable insights. I mean, you know, you look at these businesses and sometimes what you find excites you, sometimes what you find scares you, but it's never time wasted. End of my speech on that, and then I'll hand over to Martin for his unit.

On SCNA, let me state again that we have fully implemented the SCNA plan by mid-this year. That corresponds to 2,200 FTEs reduction and an overall saving of over 150 million. You asked is there more potential. Clearly going forward also in the environment where demand is uncertain, we will continue to look for further opportunities to flex our cost base also in an environment where volumes are flat to down. We have not launched any new programs, but for sure we will keep on looking for further opportunities to further structurally bring our costs down.

Perfect. Thank you very much.

The next question today will be from the line of James Hooper with Bernstein Society General Group. Please go ahead. Your line is open.

Hi. Good morning. Good morning, both. I have two further questions. The first is on Western Europe in the deco business that we saw a return to growth here. Can you give a little bit of information about the drivers here? Is there kind of an underlying pickup in this market, or is this perhaps a function that last year's weather was terrible? And then the second question is building on the SG&A program. Effectively, with the size the business is now, if and when volumes do come back, is this business the right size to drive operating leverage? Or would we then see again the kind of number of employees increase as and when volumes come back? Thank you very much.

I'll cheat this time. I'll address both questions because the second one is easy. We can operate, we can grow, and we can even significantly grow at the level of staffing and the level of costing that we're heading to currently. So this isn't yo-yoing. We aim to stay at those lower levels long-term. and we have clearly the operational leverage to grow without adding cost, or rather we can grow without adding cost and without adding people, and I'll create operational leverage. So it's a virtuous model. Otherwise, I'd be embarrassed to tell you guys that we're spending $200 million on restructuring this year to solve a short-term mission. I think that would... that would be a very disappointing message. So we will stay at those lower cost levels and at those lower staffing levels, and actually I think we'll actually continue to take those down because we see further potential. Western Europe, DECO, we have two strongholds in Western Europe that are markets where we have – and a north of 40% market share. It's the UK and the Benelux. And both have been doing well. And you're right. Part of it is the weather. The weather was atrocious last year. It's been really good this year. And part of it has been that... The market has just been a little bit better, particularly on the professional side. Last year, the professional side was hard. And this year, the professional side is picking up a little bit, which is a good thing for us because the professional side has good margins. So it's a combination of both things. James, anything else?

Thanks. Very clear on the first one. Perhaps we can extend a little bit into the DECO question to Southern Europe as well. Just a bit more on the softness there, please.

Southern Europe, we're seeing – we have a market that's problematic in southern Europe, which is France, which we count as southern. France has just been – it's a little bit better, but it's been depressed. It's been one of the tougher markets in Europe, actually. And that continues to pull us down a little bit. But overall, as I said, Turkey is – our story was very much rebalancing at the beginning of the year, and now we're seeing that the plus side of the rebalancing is a little bit compromised by the fact that the Turkish deco market is down double digits currently. You know, Deco is driven by consumer confidence, consumer sentiments, and in countries where there are complicated situations politically or else, it has a tendency to be visible in decorative paint consumption.

Anything else here? Very much. That's very clear, very helpful. That's great. Thank you. Thanks.

The next question today will be from the line of Katie Richards with Barclays. Please go ahead. Your line is open.

Hi, good morning. Just one final question for me. Can you explain a little bit about how the royalty streams might work following the divestment of the Indian business? Are you able to elaborate on the financial impact you might expect here or how this will be implemented?

You know, it's a really good question, Cathy, and what we'll do is we'll innovate, because usually Martin and I take all the questions, but Kenny, who's our head of IR and our head of treasury, is actually also the guy who was the deal lead on the Indian transaction. And he knows more about it than you'll ever want to hear. So what India was about, what, 400 million in revenue? About 150 million of that is coatings, roughly?

That's correct.

And on the coatings side, we got a 4.5% royalty. Want to explain, Kenny? Yes, correct.

As Greg just mentioned, the business that's being divested is about 400 million euros of annualized revenue. 60% of that is deco. 40% of that is coatings. On the coating side, we'll be collecting 4.5% licensing fees every year. So, basically, that's kind of the math in terms of the annualized revenue that we would get from that.

We're the technology provider, essentially, to these guys. So, because the GSW folks are mostly present in DECO, they saw a lot of value to continuing to have access to the AxoNobel coating products and our innovation and we saw value to that too because a lot of our coating customers are global customers and therefore you don't want to have a blind spot where your products are not available somewhere and so this is actually a really good arrangement for both parties. They get access to our coating innovation which they can sell solely for India and they pay us 4.5% royalty on sales And we get to tell our customers that they get Axo products around the world, including in India. Does that answer your question, Cathy?

Yes, that's perfect. Thank you.

And at some point, I think Chetan did some value math incorporating the royalties and came to the conclusion that Kenny did better than he's been given credit for. And we appreciate the compliment, Chetan, and you're correct. Thank you, Chetan.

Greg, we have no further questions on the line at this time. So, Greg, I would now like to leave the floor to you for any closing remarks.

Okay. Thank you very much for your time and attention today. As you saw, Q2 was a solid quarter for us. Markets are a little bit tough, a little bit softer than we'd like. our action plan is well suited to those markets. We're becoming leaner, we're becoming more efficient, and we're pricing. So positive pricing, negative OPEX, and good cash flow. And once again, we're focusing on our value creation plan, both in terms of extracting value from our assets and lowering our costs, but also in terms of extracting value from our portfolio, as you saw with India, and as hopefully we'll have other discussions about in the future. On those words, I thank you very much for your time and look forward to talking to you next time. Thank you.

This concludes the Axo Nobel Q2 results call. Thank you all for joining. You may now disconnect your lines.